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Chapter 20 Financial System "Family Portrait"
Chapter 20 Financial System "Family Portrait" (3)
However, this is still a relatively comforting thing for Wall Street. At the same time, another Wall Street investment bank, Lehman Brothers, has declared bankruptcy.The speed at which Merrill reached an agreement with the banks was astounding.Affected by the subprime mortgage crisis, Merrill Lynch's stock price plummeted. Seeing that it was difficult to save himself, John Thain made a decision to contact Bank of America CEO Kenneth Lewis to see if he was interested in acquiring them.Bank of America CEO Kenneth Lewis has always been known for his acquisitions, and the acquisitions are all larger companies than Bank of America.
Bank of America isn't the only negotiator in Merrill's hunt for a takeover.Merrill Lynch once extended its tentacles to Morgan Stanley, trying to integrate the two oldest financial intermediary brands on Wall Street in the United States, but failed.Because Morgan Stanley needs time, and Merrill Lynch can't wait.This accelerated the integration with the Bank of America. In this financial earthquake, Wall Street also began a major integration of bones and muscles.Many well-known financial institutions have collapsed, such as Lehman Brothers, and Merrill Lynch is undoubtedly one of the lucky ones.
In addition to the financial intermediaries mentioned above, such as Merrill Lynch and Lehman Brothers, Hang Seng Bank, Sino-British Life Insurance, HSBC Hong Kong, Standard Chartered Bank of the United Kingdom... are all famous financial intermediaries in the world.Having said so many financial intermediaries, what exactly are financial intermediaries?
Financial intermediaries refer to the economies that absorb funds from surplus units to supply deficit units and provide various financial services.It is an intermediary organization that absorbs funds from fund suppliers and then transfers funds to fund demanders.Its functions mainly include credit creation, settlement and payment, resource allocation, information provision and risk management.
Since the 20s, especially since the 50s, there have been many new changes in the development of financial institutions, and large-scale and all-round financial innovations have appeared in the financial industry.At the same time, with the development of international investment by multinational corporations, financial intermediaries are gradually expanding overseas.Under the promotion of these conditions, the development of financial intermediaries has also undergone many new changes, which are mainly manifested in: financial institutions continue to innovate in business, and the direction of development tends to be comprehensive.Mergers and reorganizations have become an effective means of integrating modern financial institutions, which has prompted the continuous emergence of large-scale cross-border financial intermediaries, thereby accelerating the continuous innovation of financial institutions in organizational form.At the same time, the operation and management of financial institutions are also frequently innovating. However, the risk of financial institutions has become greater and the requirements for technical content have become higher and higher.
In order to fulfill the intermediary function, financial intermediaries usually issue various subordinated securities, such as certificates of deposit, insurance policies, etc., in exchange for funds.And because there are great differences in the subordinated securities issued by various financial intermediaries, economists rely on these differences as the basis for classifying financial intermediaries.Generally speaking, financial intermediary institutions that issue monetary subordinated securities such as passbooks and deposit certificates are called depository monetary institutions, and these subordinated securities issued by depository monetary institutions not only account for the majority of depository monetary institutions' liabilities, generally speaking, It is also part of the money supply; as for the secondary securities issued by non-depository monetary institutions, such as insurance policies, they account for a large part of the liabilities of non-depository monetary institutions, and these secondary securities are not part of the money supply.
According to whether to issue currency indirect claims, we can divide financial intermediaries into:
1. Deposit Monetary Institutions (Deposit Monetary Institutions): including commercial banks, specialized banks, grassroots cooperative financial intermediaries, and central trust bureaus.Among them, professional banks include small and medium-sized enterprises banks, industrial banks, and agricultural banks, while grassroots cooperative financial intermediaries include credit cooperatives, credit departments of agricultural and fishery associations, etc.
2. Non-deposit Monetary Institutions (Non-deposit Monetary Institutions): including the Postal Savings and Remittance Bureau, trust and investment companies, and insurance companies.
From the definition, we can understand that financial intermediaries are actually designers and traders of financial products.How do financial intermediaries accomplish their tasks in specific business activities?
In their business activities, enterprises need to invest and raise funds in the financial market, and also need to guard against and avoid potential market risks, and may also need to reorganize their ongoing business and owned assets.It is necessary to use some financial products to complete these activities.As designers and traders of financial products, financial intermediaries should clearly understand the needs of enterprises and design financial products according to the actual needs of enterprises. More importantly, they should actively help enterprises choose financial products correctly so that enterprises can pass Achieve success in product management and develop healthily, sustainably and rapidly.
In the process of investment and financing, financial intermediaries will inevitably have risks.Restrictive contracts are one way people use to mitigate moral hazard.However, although restrictive contracts can help alleviate the problem of moral hazard, it does not mean that it can completely eliminate its occurrence.It is almost impossible to formulate a contract that excludes all risky activities.In addition, borrowers may be clever enough to spot loopholes that render restrictive covenants ineffective.
Moral hazard remains a serious problem with negotiable debt.
As we know, financial intermediaries, especially banks, have the ability to avoid the free-rider problem as long as they mainly make private loans.Private loans are non-transactional, so no one can free ride on intermediaries monitoring and enforcing restrictive covenants.As a result, intermediary agencies that provide private loans obtain benefits from monitoring and enforcing contracts, and their work reduces the moral hazard problems lurking in debt contracts.The moral hazard concept provides us with a further explanation that financial intermediaries play a larger role than negotiable securities in communicating the flow of funds from savers to borrowers.
Use of Intermediaries: Reducing Transaction Costs
If you have $5000 and you plan to invest it in the stock market, since you only have $5000, you can only buy very few stocks.Stockbrokers will tell you that brokerage commissions for buying stocks can be a very high percentage of the stock purchase price.This problem is exacerbated if you decide to invest in bonds, as some of the bonds you wish to purchase have a minimum face value of $10000.In fact, since your account is too small for the broker to bother with it, he has no interest in your business.You are dismayed to discover that the financial markets are unable to help you earn income on your hard-earned savings.To some relief, you're not alone in suffering from high transaction costs.Many of us face this situation.Small savers like you are denied access to the financial markets and their benefits.Fortunately, the development of financial intermediation, an important part of the financial structure, has reduced transaction costs, allowing small savers and borrowers to profit from financial markets.
So, how do financial intermediaries reduce transaction costs in the market?
Transaction costs include financial market costs and financial intermediary costs.Financial market costs include direct transaction costs and implicit transaction costs. The former includes commissions, information costs and taxes, and the latter includes execution costs and opportunity costs.Financial intermediary costs mainly include information costs and contract formulation costs, among which contract costs also include the cost of implementing terms.A sound market reduces information costs and execution costs by increasing liquidity, forming and disclosing a large amount of information, and reducing the difference between bids and asks, so as to achieve the purpose of reducing transaction costs; financial intermediaries can rely on information on financial asset processing Advantages, economies of scale advantages and expert financial advantages effectively reduce transaction costs.
Pooling the funds of many investors is the most powerful method that financial intermediaries can use to reduce transaction costs.In this way, the investment transaction cost per unit currency value decreases with the expansion of the transaction scale.Economies of scale exist because in financial markets, the total cost of a single transaction increases only by a small amount as the size of the transaction increases.For example, the cost of buying 10000 shares of stock is not much higher than the cost of buying 50 shares.
The existence of economies of scale is the reason why financial intermediaries can play a role and become an important part of the financial structure.A typical institution in this regard is the mutual fund.A mutual fund is a financial intermediary that raises funds by selling shares to individuals and investing them in stocks or bonds.Mutual funds enjoy lower transaction costs due to the size of the stocks or bonds they buy.Because mutual funds deduct these costs in the form of management fees in the name of managed accounts, individual investors can also enjoy the benefits of cost savings.An added benefit of mutual funds is that they can be large enough to buy a diversified portfolio of securities, thereby reducing individual investor risk.
In addition, financial intermediaries can develop specialized technologies to reduce transaction costs.Their expertise in computers can provide customers with more convenient services. For example, when large denomination payments are required, it is very inconvenient and unsafe to use cash, and it is safe and convenient to use bank transfers. This is the use of financial convenience to reduce Transaction cost advantage.
E-finance: the financial master of the future
With the development of China's economy and financial industry, electronic finance is no stranger to Chinese people.
In the 2009nd China E-finance Development Annual Conference and the 1st China E-finance Golden Goblet Awards held in January [-], Yinhua Fund won the "Best Online Fund Company" for its outstanding achievements, and "Yinhua E Station" was awarded Rated as "Customer Satisfied Electronic Financial Brand".
Now banks have also launched electronic financial services.
The most familiar ones are the Financial @ Home launched by the Industrial and Commercial Bank of China Co., Ltd.; the Jine Shun launched by the Agricultural Bank of China;Various electronic financial products stand out, highlighting the unique charm of electronic finance.
With the popularity of the Internet, the status of the Internet in the securities market is becoming more and more important. In June 1999, Merrill Lynch shocked Wall Street when it began to offer its 6 million customers online trading services with a minimum transaction amount of $500.Now, online transactions are very common.
In fact, e-finance is the financing of funds through electronic means, including many business aspects, such as online banking, electronic settlement, POS machine business and so on.Its content mainly includes the electronicization of traditional counter business.In terms of subdivision, it is the electronicization of corporate business and the electronicization of savings business.
In the second half of the 20th century, the electronicization of finance began to be realized and put into use. It flourished with the development of electronic technology and its extensive penetration in the financial industry.Its appearance has not only greatly changed the appearance of the financial industry and expanded its service varieties, but also has and continues to change people's economic and social life styles.Nowadays, all social organizations and individuals, whether consciously or not, feel the existence of electronic finance directly or indirectly, and all enjoy the services it provides.
Compared with western countries, my country's financial electronicization started relatively late, but it has made rapid progress in financial electronic construction, and fundamental changes have taken place in financial communication networks and financial business processing. The financial system has played an important role in strengthening financial macro-control, preventing and defusing financial risks, accelerating capital turnover, reducing operating costs and improving the quality of financial services, which has promoted the rapid, healthy and stable development of my country's national economy and finance.
However, despite the rapid development of electronic finance, some defects still cannot be ignored.For example, there is a lack of strategic planning for financial electronicization, many difficulties in the construction of a national payment and settlement system, the slow pace of construction of certification centers for online financial companies, and the level of financial information security construction still lags behind the electronic level to a large extent. It also needs to be continuously perfected and improved in the future development process.
(End of this chapter)
However, this is still a relatively comforting thing for Wall Street. At the same time, another Wall Street investment bank, Lehman Brothers, has declared bankruptcy.The speed at which Merrill reached an agreement with the banks was astounding.Affected by the subprime mortgage crisis, Merrill Lynch's stock price plummeted. Seeing that it was difficult to save himself, John Thain made a decision to contact Bank of America CEO Kenneth Lewis to see if he was interested in acquiring them.Bank of America CEO Kenneth Lewis has always been known for his acquisitions, and the acquisitions are all larger companies than Bank of America.
Bank of America isn't the only negotiator in Merrill's hunt for a takeover.Merrill Lynch once extended its tentacles to Morgan Stanley, trying to integrate the two oldest financial intermediary brands on Wall Street in the United States, but failed.Because Morgan Stanley needs time, and Merrill Lynch can't wait.This accelerated the integration with the Bank of America. In this financial earthquake, Wall Street also began a major integration of bones and muscles.Many well-known financial institutions have collapsed, such as Lehman Brothers, and Merrill Lynch is undoubtedly one of the lucky ones.
In addition to the financial intermediaries mentioned above, such as Merrill Lynch and Lehman Brothers, Hang Seng Bank, Sino-British Life Insurance, HSBC Hong Kong, Standard Chartered Bank of the United Kingdom... are all famous financial intermediaries in the world.Having said so many financial intermediaries, what exactly are financial intermediaries?
Financial intermediaries refer to the economies that absorb funds from surplus units to supply deficit units and provide various financial services.It is an intermediary organization that absorbs funds from fund suppliers and then transfers funds to fund demanders.Its functions mainly include credit creation, settlement and payment, resource allocation, information provision and risk management.
Since the 20s, especially since the 50s, there have been many new changes in the development of financial institutions, and large-scale and all-round financial innovations have appeared in the financial industry.At the same time, with the development of international investment by multinational corporations, financial intermediaries are gradually expanding overseas.Under the promotion of these conditions, the development of financial intermediaries has also undergone many new changes, which are mainly manifested in: financial institutions continue to innovate in business, and the direction of development tends to be comprehensive.Mergers and reorganizations have become an effective means of integrating modern financial institutions, which has prompted the continuous emergence of large-scale cross-border financial intermediaries, thereby accelerating the continuous innovation of financial institutions in organizational form.At the same time, the operation and management of financial institutions are also frequently innovating. However, the risk of financial institutions has become greater and the requirements for technical content have become higher and higher.
In order to fulfill the intermediary function, financial intermediaries usually issue various subordinated securities, such as certificates of deposit, insurance policies, etc., in exchange for funds.And because there are great differences in the subordinated securities issued by various financial intermediaries, economists rely on these differences as the basis for classifying financial intermediaries.Generally speaking, financial intermediary institutions that issue monetary subordinated securities such as passbooks and deposit certificates are called depository monetary institutions, and these subordinated securities issued by depository monetary institutions not only account for the majority of depository monetary institutions' liabilities, generally speaking, It is also part of the money supply; as for the secondary securities issued by non-depository monetary institutions, such as insurance policies, they account for a large part of the liabilities of non-depository monetary institutions, and these secondary securities are not part of the money supply.
According to whether to issue currency indirect claims, we can divide financial intermediaries into:
1. Deposit Monetary Institutions (Deposit Monetary Institutions): including commercial banks, specialized banks, grassroots cooperative financial intermediaries, and central trust bureaus.Among them, professional banks include small and medium-sized enterprises banks, industrial banks, and agricultural banks, while grassroots cooperative financial intermediaries include credit cooperatives, credit departments of agricultural and fishery associations, etc.
2. Non-deposit Monetary Institutions (Non-deposit Monetary Institutions): including the Postal Savings and Remittance Bureau, trust and investment companies, and insurance companies.
From the definition, we can understand that financial intermediaries are actually designers and traders of financial products.How do financial intermediaries accomplish their tasks in specific business activities?
In their business activities, enterprises need to invest and raise funds in the financial market, and also need to guard against and avoid potential market risks, and may also need to reorganize their ongoing business and owned assets.It is necessary to use some financial products to complete these activities.As designers and traders of financial products, financial intermediaries should clearly understand the needs of enterprises and design financial products according to the actual needs of enterprises. More importantly, they should actively help enterprises choose financial products correctly so that enterprises can pass Achieve success in product management and develop healthily, sustainably and rapidly.
In the process of investment and financing, financial intermediaries will inevitably have risks.Restrictive contracts are one way people use to mitigate moral hazard.However, although restrictive contracts can help alleviate the problem of moral hazard, it does not mean that it can completely eliminate its occurrence.It is almost impossible to formulate a contract that excludes all risky activities.In addition, borrowers may be clever enough to spot loopholes that render restrictive covenants ineffective.
Moral hazard remains a serious problem with negotiable debt.
As we know, financial intermediaries, especially banks, have the ability to avoid the free-rider problem as long as they mainly make private loans.Private loans are non-transactional, so no one can free ride on intermediaries monitoring and enforcing restrictive covenants.As a result, intermediary agencies that provide private loans obtain benefits from monitoring and enforcing contracts, and their work reduces the moral hazard problems lurking in debt contracts.The moral hazard concept provides us with a further explanation that financial intermediaries play a larger role than negotiable securities in communicating the flow of funds from savers to borrowers.
Use of Intermediaries: Reducing Transaction Costs
If you have $5000 and you plan to invest it in the stock market, since you only have $5000, you can only buy very few stocks.Stockbrokers will tell you that brokerage commissions for buying stocks can be a very high percentage of the stock purchase price.This problem is exacerbated if you decide to invest in bonds, as some of the bonds you wish to purchase have a minimum face value of $10000.In fact, since your account is too small for the broker to bother with it, he has no interest in your business.You are dismayed to discover that the financial markets are unable to help you earn income on your hard-earned savings.To some relief, you're not alone in suffering from high transaction costs.Many of us face this situation.Small savers like you are denied access to the financial markets and their benefits.Fortunately, the development of financial intermediation, an important part of the financial structure, has reduced transaction costs, allowing small savers and borrowers to profit from financial markets.
So, how do financial intermediaries reduce transaction costs in the market?
Transaction costs include financial market costs and financial intermediary costs.Financial market costs include direct transaction costs and implicit transaction costs. The former includes commissions, information costs and taxes, and the latter includes execution costs and opportunity costs.Financial intermediary costs mainly include information costs and contract formulation costs, among which contract costs also include the cost of implementing terms.A sound market reduces information costs and execution costs by increasing liquidity, forming and disclosing a large amount of information, and reducing the difference between bids and asks, so as to achieve the purpose of reducing transaction costs; financial intermediaries can rely on information on financial asset processing Advantages, economies of scale advantages and expert financial advantages effectively reduce transaction costs.
Pooling the funds of many investors is the most powerful method that financial intermediaries can use to reduce transaction costs.In this way, the investment transaction cost per unit currency value decreases with the expansion of the transaction scale.Economies of scale exist because in financial markets, the total cost of a single transaction increases only by a small amount as the size of the transaction increases.For example, the cost of buying 10000 shares of stock is not much higher than the cost of buying 50 shares.
The existence of economies of scale is the reason why financial intermediaries can play a role and become an important part of the financial structure.A typical institution in this regard is the mutual fund.A mutual fund is a financial intermediary that raises funds by selling shares to individuals and investing them in stocks or bonds.Mutual funds enjoy lower transaction costs due to the size of the stocks or bonds they buy.Because mutual funds deduct these costs in the form of management fees in the name of managed accounts, individual investors can also enjoy the benefits of cost savings.An added benefit of mutual funds is that they can be large enough to buy a diversified portfolio of securities, thereby reducing individual investor risk.
In addition, financial intermediaries can develop specialized technologies to reduce transaction costs.Their expertise in computers can provide customers with more convenient services. For example, when large denomination payments are required, it is very inconvenient and unsafe to use cash, and it is safe and convenient to use bank transfers. This is the use of financial convenience to reduce Transaction cost advantage.
E-finance: the financial master of the future
With the development of China's economy and financial industry, electronic finance is no stranger to Chinese people.
In the 2009nd China E-finance Development Annual Conference and the 1st China E-finance Golden Goblet Awards held in January [-], Yinhua Fund won the "Best Online Fund Company" for its outstanding achievements, and "Yinhua E Station" was awarded Rated as "Customer Satisfied Electronic Financial Brand".
Now banks have also launched electronic financial services.
The most familiar ones are the Financial @ Home launched by the Industrial and Commercial Bank of China Co., Ltd.; the Jine Shun launched by the Agricultural Bank of China;Various electronic financial products stand out, highlighting the unique charm of electronic finance.
With the popularity of the Internet, the status of the Internet in the securities market is becoming more and more important. In June 1999, Merrill Lynch shocked Wall Street when it began to offer its 6 million customers online trading services with a minimum transaction amount of $500.Now, online transactions are very common.
In fact, e-finance is the financing of funds through electronic means, including many business aspects, such as online banking, electronic settlement, POS machine business and so on.Its content mainly includes the electronicization of traditional counter business.In terms of subdivision, it is the electronicization of corporate business and the electronicization of savings business.
In the second half of the 20th century, the electronicization of finance began to be realized and put into use. It flourished with the development of electronic technology and its extensive penetration in the financial industry.Its appearance has not only greatly changed the appearance of the financial industry and expanded its service varieties, but also has and continues to change people's economic and social life styles.Nowadays, all social organizations and individuals, whether consciously or not, feel the existence of electronic finance directly or indirectly, and all enjoy the services it provides.
Compared with western countries, my country's financial electronicization started relatively late, but it has made rapid progress in financial electronic construction, and fundamental changes have taken place in financial communication networks and financial business processing. The financial system has played an important role in strengthening financial macro-control, preventing and defusing financial risks, accelerating capital turnover, reducing operating costs and improving the quality of financial services, which has promoted the rapid, healthy and stable development of my country's national economy and finance.
However, despite the rapid development of electronic finance, some defects still cannot be ignored.For example, there is a lack of strategic planning for financial electronicization, many difficulties in the construction of a national payment and settlement system, the slow pace of construction of certification centers for online financial companies, and the level of financial information security construction still lags behind the electronic level to a large extent. It also needs to be continuously perfected and improved in the future development process.
(End of this chapter)
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