Victory Investment

Posts Tagged ‘Banking’

“I cant afford it, I’m broke” he said.

…to which I responded “broke is a mindset”

He says “Broke Is a Fact!”

This intrigued me, so I did an experiment.

The other week was really interesting.

In one day I spoke to a Banking & Finance billionaire…

…a millionaire…

…a million pound bonus CEO…

…a six figure salary Investment Banker…

…200 interns at most major banks…

…7 graduates on my facebook group that could not get a job…

…and 1 student that said he was too broke to invest in one of my training programs.

Now although this is a normal week for me in my line of business,

but this time I was looking through different glasses.

I remember what it was like to be short of cash, but broke has never been in my vocabulary.

Even when I had £100,000 debt, I still thought I was rich.

Everybody else thought I was deluded.

I spent and spent and spent on training, business ideas, professional qualifications and things that I knew would further my life.

I have never used the words “I can’t afford it”, because it is so limited in terms of mindset.

…so when I had a conversation with a student that said he could not afford it, he was offended by my broke is a mindset comment.

And it set my brain thinking that particular day…

What is the difference between a Banking & Finance billionaire…

…a Banking & Finance millionaire…

…a £100,000 salary in Banking & Finance…

…a £25,000 salary in Banking & Finance…

…and broke with a Banking & Finance Masters?

Interesting?

…so interesting, I thought I would share the results with you here…

So, I decided to speak to them all in one day.

First, the broke student.

His belief was that money is scarce…

…and that he is ‘just’ a student…

…and students don’t have money!

When I was a student I was self funded, had a job and owned a business because I wanted to have all the money I needed at uni.

Just because I was a student, didn’t mean I wanted to be broke for a second.

Why did we both have two different realities?

Interesting?

A few hours later I met an Investment Banker with regards to raising finance for a private equity deal.

I don’t know for sure, but my guess is that he might be on £100,000 plus bonus.

As an Investment Banker, you get to meet serious business geniuses and Venture Capitalists.

In my Investment Banking days, When I was raising finance for them, I always used to ask myself “How did you start this”

I was always curious about the founder, how it began, the inspiration, the vision and the mission behind the idea.

This particular Investment Banker never thought about those things.

He was focused on sealing the deal and moving to the next stage.

Interesting?

I then got on the phone to my business partner Peter Hargreaves, he owns Hargreaves Lansdown, a FTSE listed Wealth Management Company with his own personal net worth of £500 million, in the Times Rich List.

I was excited about a new project I was working on in October where I was going to run a Bank sponsored day for students and graduates who want to work in Banking & Finance with all proceeds going to a charity I am a volunteer and fundraiser for called “Peace One Day”.

The day is going to hook students and graduates up with the biggest influencers in Banking & Finance and tell them about new opportunity in the new economy with billionaires and inspiring leaders. (Put November 22nd in your diary)

Immediately Peter asked me about how profitable the event will be. I told him I don’t know, he said get back to me when you have thought about it.

Interesting?

Then on the same day I met Mike Harris, who created three multi billion pound businesses in a row, two of them in Banking and Finance.

I asked him about two of his Banking & Finance businesses…

…he told me they were both born out of his mission to “Transform Banking”.

In his mission to transform banking, he created First Direct, the first telephone bank and Egg, the first online bank.

I asked him, how do you create a multi billion pound business.

His response…

“You need to have a mission, you need to transform something, you need to revolutionise, you need passion”

There was a bit more to the four hour conversation than that, but that is the essence.

Interesting?

I immediately gave Mike Harris a value proposition and we agreed to do a consultancy swap for half a day each.

We agreed that I would consult him for half a day on my value proposition and he’ll consult me for half a day on building an iconic brand.

(I’ll teach you how to get a result like this in another conversation!)

To which I immediately accepted.

Consulting from a multi billionaire on building an iconic brand…

Result

Then later that evening I went to a party I had organised with over 200 interns from every major Bank in the world.

‘The Banking & Finance VIP Party’

At the party there were a few people that didn’t recognise me and asked me where I was interning.

I told them I owned Benedix and I was here to meet and network with my clients who have secured their first job in Banking & Finance and discuss next steps to turn it into more.

He was shocked!

He though I was too young to own a company.

Interesting?

I spoke to hundreds of interns that evening from Goldmans, Citi, Deutsche, Barclays Capital and every major bank.

The theme of their conversation with me…?

Simon, how can I turn this into a full time offer and they were buzzing over the £25-£35k salary they were receiving.

Interesting?

You see, I could of told them about how to build an iconic multi billion pound brand, from the conversation I was having earlier that day, but there mind was not thinking higher than getting the £30k job.

Interesting?

So what is the point in all this, Simon?

OK.

The results of my interesting day?

We get paid what we believe we should be paid.

We tend to earn the same amount of money as the people we spend most of our time with.

We all have unlimited potential, but limited beliefs.

What if I introduced the broke student to the billionaire and they hung out for three months.

Do you think the broke student might see things differently, meet some new contacts, be introduced to a new way of thinking, come up with an idea?

They say our income is the average of the 5 people we spend most of our time with.

The Take away

Billionaires think differently from millionaires…

…millionaires think differently from £100k salaries…

£100k salaries think differently from £25k salaries…

£25k salaries think differently from broke students.

Students who can afford our programs think differently from those who can’t?

So we all have unlimited potential, but the only thing that determines our result is our belief.

Mike Harris believes he can transform.

And he transforms.

Peter Hargreaves believes profit is king.

And he profits in a huge way.

The Investment Banker believes he can seal the deal.

And he sealed the deal.

The interns believe £25k is amazing.

And they got their internship.

The student that can’t afford to invest in the training to get his career moving believes he is broke.

And he still has not enrolled on my Banking & Finance Professional Program, to get a different result.

I believe anything is possible, we have unlimited potential and everything is belief, combined with strategy.

Get the belief and strategy right and anything can be done.

The strategy comes from those who have achieved the result you want to achieve.

Nowhere else.

The belief is from within.

But there are ways of increasing your belief.

Hang out with those who believe differently.

Skeptics are controlled by fear.

Opportunists, feel the fear and do it anyway.

Being skeptical is easy.

Taking a risk means you grow and learn.

You risk looking foolish if it goes wrong, but the alternative is being a skeptic and never trying.

Opportunists have the same fear.

But that fear is the fear of not achieving the result they want.

That fear drives both the skeptic and the opportunist.

They both get different results.

I think it’s interesting anyway?

Surround yourself with people who have the result you want and eventually you will have that result.

Please comment and let me know your thoughts.

To your success

Simon

Cayman Bank to raise capital, such as debt or equity capital for its clients and Advice on the possible merger of customers and acquisition transactions. At the top of the global investment banks and the stock market including stocks, bonds and Treasury bills its institutional investors. These international investment Commercial banks in reality for the respective accounts. There are many existing Investment banks are also involved in managing third party assets. The international investment bank consists of several departments, such as Departments of the Debt Capital Markets, Equity Capital Markets, Asset Management, Risk Management, marketing, treasury management, mergers and acquisitions and Research.

 

Cayman banking  could be very confusing for a normal installation individual and that is a reason for people to seek help from qualified investment deals. Really good suppliers of the various global financial services should a solid foundation in terms of dealing with the international market. Must also available in a situation, in time for global financial services and solutions Customers can ask of them. A few features that a good international Financial services is to be able to offer for sale, trade, Advice and above all, the various strategies to improve a company’s Capital.

 

Cayman Banks are the first order must also be supported by competent persons who offers a high level of playability, along with a wide and the impressive performance. Must correctly distinguish the exact Needs of each customer, as the financial proposals made, and offer tailored financial strategies. First-class international financial services Doctors also maintain good corporate governance. These companies are trying meeting all their social responsibility to their shareholders, and other interested groups. Improve the corporate values and to convey in this its employees and provides market-based financial solutions and advice their customers.

 

Some global financial markets, investment banks are higher than those in New address York, Tokyo and London, among others. global investment banking actually works for

Provision of high-quality service for a wide range of clients around the world. Customer’s international investment banks including public sector, large enterprises,

Hedge funds, financial institutions and other organizations.

 

Cayman banking  is very important for many customers around the world. If a many things for them and offers flexibility for customers. Primary the aim of the international deal to ensure financial success their customers. This is the reason why these banks offer a lot Solutions, strategies and services that require the raising of capital Public and private sector, restructuring and financial solutions or financial advice. Ensured through the provision of these services that these international investment banking units offer a broad knowledge of financial markets and coordinated implementation of their worldwide customers.

In today’s diverse and unpredictable economy, the need for a sustained profit plan and long term growth strategy has become essential for both individuals and corporations. Merchant banking principally involves providing financial services and advice for individuals and corporations. Merchant banking operations consists of providing clients with a variety of financing options to sustain long term growth.

Merchant banks tend to have operations in a variety of countries throughout the world allowing them to offer an extensive network distribution to help their clients explore opportunities with alternative finance options.

In banking, a merchant bank is a financial institution that primarily invests its own capital in a client’s company. Merchant banks provide fee based corporate advisory services for mergers and acquisitions, as well as other financial services. Merchant banking operations focus on commercial international finance, stock underwriting, and long-term company loans. These banks work with financial institutions with their primary function being stock underwriting. They also work in the area of private equity where the securities of a company are not available for public trading.

The most common private equity investment strategies include venture capital, leveraged buyouts, distressed investments, growth capital, and mezzanine capital. Leveraged buyout generally means that they acquire majority control over existing or mature corporations. Growth capital and venture gains means they invest in newer or rising corporations without acquiring majority control.

Today, merchant banks are involved in a number of tasks such as credit syndication, portfolio management, mergers and acquisitions counseling, and acceptance of credit, etc. Their investments include private equity, structured equity, and bridge debt. They generally invest in private or public companies to finance growth, acquisitions, and management/leveraged buyouts and recapitalizations. In some cases, they provide an invested company with short-term financing for a particular project, or provide short-term liquidity.

Merchant Banking operations can focus on a particular country or they can expand their operations in other countries. They can assist sustainable companies undergoing a financial restructuring requiring short-term liquidity. These banks provide their partners with financial analysis, capital structuring and strong industry relationships. They provide the corporate lending, leveraged finance, and investment banking and industry expertise. Merchant Banking operations provide all types of domestic and foreign banking transactions, corporate finance services, product knowledge, and management services.

Global merchant banking operations provide individual and corporate investors with the opportunity to participate globally for access to international investment opportunities, providing global companies access to a particular market, and opportunities for co-investment.

When searching to partner with a Merchant Banking Service Company in order to enhance your business operations, you should find a well established, full-service merchant financial services company. You want a large, credible firm that can demonstrate a good track record. Ask the merchant banks how long they have been in business and who some of their customers are, particularly from your market, so they can demonstrate their experience and understanding of your needs.

Merchant banking operations provide the support, knowledge, and resources to effectively assist clients and corporations with improving, expanding, and sustaining their business and business investments.

Banking jobs, especially investment banking jobs are very much in demand. Every young kid who is good with figures wants to be an investment banker. Why? This is simply because investment banking is one of the most lucrative jobs around!  But we all know that it takes time and dedication to succeed. You need to start off with entry level banking jobs just like everyone else!

Some Job Profiles

Having said that, I must tell you that investment banking is not the only banking job around, there are different types of banking jobs, but it is not surprising that about 67% if the total banking jobs are those of a bank teller’s.  Some important job positions in a bank are:

Bank Manager – The man who runs the show. You need to supervise the daily operations of the bank and find out whether bank employees are doing their work as planned.
Accountants – If you are good with accounts and are qualified, you can become an accountant with a bank. This job is an important one because the work done by an accountant or rather, a team of accountants is presented before investors, tax authorities etc. and determines the financial standing of the bank.

Financial advisors- As a financial advisor, you will be making recommendations and suggestions to people who are clients. This is a very important job and also one which holds great responsibility.

Banking Job Tips

Banking careers are undoubtedly one of the most promising fields, but in order to succeed, you should keep a few things in mind:

• Research – Be aware of all the latest goings on in the business world. If you don’t know about the latest happenings, then you won’t be able to raise money for your bank or clients. After all, it is your responsibility to ensure that people are making a wise investment. It can’t be taken lightly, now can it?

• Networking – Banking careers, almost like every other field have become synonymous with networking. One can’t get anywhere until they establish all the right contacts. So get to know people. Attend gatherings, parties to-dos etc. Anything that will get you in front of people from your field!

• Fees – As an investment banker, you need to do some research before you quote your fee.  Try to ensure that you get back a good amount, as compared to what you invested in the first place.

• Dedication – Everyone knows that you can’t succeed in any field without dedication. This is especially true for banking jobs. You have to devote all of your time to the service of the bank and to clients. If you are an investment banker, you will have additional responsibility. People will want to know from you how they should spend their money, don’t disappoint them!

Mortgage banking jobs are also quite interesting. So if investment banking or being a bank teller is not your thing, you can always go in for this job. There are various types of banking jobs, take your pick wisely, make sure you are equipped to handle your office!

The 2007-2010 financial crises can be described as the worst crisis the world has faced since the Great Depression.  It has had severe impact in the world economy and ripples of the crisis have been felt even by the developing nations that were not directly linked to the epicenter of the crisis. One of the main factors that have contributed to the spread of the crisis all over the world has been the interconnectedness of the global economy as a result of globalization. The rate at which the recent economic crisis spread to the rest of the world is not the same rate at which the Great Depression spread because the world economy is more interconnected today than it was in the 1930s.

The recent economic crisis started in the United States and spread to other parts of the world.  It build up slowly starting in 2001 and  peaked up in 2008 when financial institutions started to crumble and the economy started to slow down.  Although it was highly anticipated that an economic crisis would finally ensue as a result of housing bubble in 2001, it was delayed and most people thought that the crisis would not happen in any way.   When the crisis finally struck in 2006, it spread very fast and within two years, it had eroded consumer wealth and claimed a number of financial institutions.

The recent economic crisis was trigged by a subprime mortgage crisis in the United States.   Since 1980s, United States had repealed a number of regulations in the financial sector and had allowed it to operate with minimal regulations. In addition, from Clinton administration to Bush administration, Americans had been encouraged to continue spending as a way of stimulating economic growth. The real estate sector was one of the areas that were doing very well and investment institutions rushed to put their money in the sector not knowing the dangers that were hidden. Since 2001, the Federal Reserve kept the interest rate low in a bid to avoid a financial crisis but this encouraged Americans to borrow and invest in the real estate sector.  Housing prices kept on rising as the demand for houses increased.   Due to lax in regulations, new loans schemes emerged and it became easier for individuals without capability to repay loans, otherwise referred to as subprime lenders, to access loans.  Apparently, the supply of housing units surpassed demand and housing prices began to fall.  The interest rates began to rise and it became difficult to service the loan with rising interest rates and falling house prices. Eventually, the rate of loan default increased and institutions rushed to repossess homes to recover their loans leading to increased foreclosure. During the boom in the real estate sector in the U.S., international investors with excess capital had found a promising sector to put their money into. They bought collateralized mortgages and when the calamity of the subprime crisis befell on the housing sector, they were also not immune. This led to spread of the crisis from the United States real estate sector to the rest of the world.

There were many factors that led to the economic crisis.  The crisis in the subprime sector was contributed by different factors but chief among them was lack of proper regulations of the financial market.  The government allowed rise of shadow banking system, which was not well regulated and that used bait method to attract borrowers to borrow loans with hidden interest rates. The government did not come in time to regulate the mortgage sector even after alarm was raised over shadow banking.  In addition, there was flawed assessment of the credit worth of borrowers and people who had no capacity to repay the loan were eventually given loans and later defaulted.

The most important cause of financial crisis that is the focus of this study was corporate governance. In both U.S and UK, corporate governance laws were overlooked and financial institutions underestimated the risk they were putting their investment into. Even when it was clear that there would be an eventual crisis in the mortgage sector in the U.S, financial institutions continued to invest in the sector. The risk assessment aspect was overlooked by most financial institutions. In addition, executives of financial institutions continued to receive fat pay and bonuses even when their institutions were dipped into the crisis. Although there were existing rules on corporate governance, they were overlooked and not strictly enforced as should have been the case. The idea of “too big to fail” was finally proved wrong as big financial institutions fall one after the other.

It is in the light of deficiency in corporate governance and regulatory environment that both U.S and UK implemented a number of factors that were aimed at correcting the situation. The U.S Congress passed the tightest regulations of the financial sector in July 2010 that are meant to streamline operations of the sector. Realizing the rot in corporate governance, UK commissioned Sir David Walter to give recommendations on what should be done to streamline corporate governance in the financial sector. Sir David Report gave 39 recommendations that were to be followed to ensure that the financial sector observed the laid down laws on corporate governance. The report did not give new laws to be followed but it gave recommendations on what had to be done to ensure that the existing laws were followed.  It appears that the two countries have decided to tackle the problem right from its roots by formulating and implementing regulations of the financial sector, as will be discussed in this study.

Bank crisis in the US

Bank crisis in the United States started in 2007 and peaked in 2008. It happened at the same time as the subprime mortgage crisis, which has been described as the main cause of 2008 global economic crisis.  Subprime mortgage crisis was a real estate crisis that was triggered by a sudden rise in mortgage deliquesces consequently leading to increased foreclosures in the country.  This had adverse consequences on banks and financial markets in the United States and other parts of the world as well.

The 2008 bank crisis in the United States did not start at once but it had piled over long period of time.  The problem can be traced to 2001 when there was a massive stock market and capital spending bubble. It became evident that the country was facing a recession and Federal Reserve had to cut interest rates down to 1% which remained until 2004 when they were raised slowly. This means that because the interest rates were low, the financial services industry saw opportunity in a lot of money that they could make and they all went into real estate but they were unaware that the low interest rates just masked large risks.  However, Americans were expecting a downturn after such a bubble burst but it was not yet coming. It was soon realized that the money that was being lost in the stock market could be fast offset by increasing home prices and therefore they continued spending freely.  Consequently, as Americans continued with free spending, United States was still getting into bad debts with the rest of the world.  Foreigners continued to use their dollar IOUS from these accumulated debts to lay foundation for their bubbles as well.

In 2006, it became evident that the market could not hold any longer. Those who could least afford to purchase their own homes, hereby referred to as subprime borrowers continued defaulting on their loans, with prices having overgrown their range of affordability.  However, it was not until 2007 when HSBC issued a stern warning, just a harbinger of things that were to come when it write down tens of billions of dollars in losses. HSBC had made a large loss from its ill-timed acquisition of subprime lender Household International in 2002. Policy makers did not first see reason to raise the alarm and they sat down watching for the system to correct itself. However it became evident that things were not moving in the right direction when two Bear Stearns hedge funds blew up in 2007.  It became evident that the potential risk had been underestimated and fear gripped the market.  In August 2007, BNP Paribas, a French bank, froze withdrawals in three investment funds and panic gripped the market.  If this bank, that had zero exposure to U.S mortgage market could have found it difficult, the financial institutions in the United States were hiding untold stories.  The year 2007 therefore marked the beginning of the credit crisis that was later to spread to other parts of the world. Fear spread not only in the stock market but also among the financial institutions. There was mutual distrust among large banks because no bank knew how far the other bank had been affected by the financial crisis.  Interbank lending became difficult which means that most banks could not easily access credit. Credit became dry in the market and the economy started a downward spiral.

At the same time, housing prices in the United States continued to fall.  There were massive losses in the mortgage-relative derivative assets that were held by large global banks. These instruments had come to be referred to as derivative because they were largely derived from value in underlying assets including mortgages. The first cases of mortgaged-related losses were concentrated on these instruments and investment vehicles like RMBSs (Residential Mortgage Backed Securities), CDOs (Collateralized Investment Vehicles) and CDOs.  Among the leading investment institutions, Merrill Lynch became the first institution that reported large losses of .5billion in 2007. Three weeks after this loss, Merrill Lynch came again and announced that losses had reached billion. That year alone, aggregate losses from all global institution grew to 0 billion. While things cooled a bit in 2008, the fall of hedge funds Peloton and Carlyle Capital brought in another wave of panic.  The sudden collapse of Bear Stearns, which was the fifth largest investment bank in United States brought market confidence to all time low. In June 2008, Lehman Brothers accounted that it had made a loss of billion and the crisis came to a full view once again as panic spread in the market.

At this time, the market did not recede that fast.  It remained under constant stress. The market remained in panic as IndyMac, which was an aggressive mortgage lender was taken over by FDIC. Next on the line was GSEs. Fear and panic gripped the market and questions were now raised about Fannie Mae and Freddie Mac, which were the largest mortgage lender in the market.  To restore market confidence, the government had to take over the two institutions to stabilize the stock market. Financial shares came under severe assault. Those that were considered weakest had come under selling pressure that eventually led to collapse of Lehman Brothers.  The company was not able to access government support and it could neither close on a merger and it filed for bankruptcy on September 15, 2008. On the same weekend, Merrill Lynch eventually sought cover and was taken over by Bank of America. Eventually it was evident that there was no institution that was too big to fail and assault on financial sector continued as AIG, the world largest insurance company, succumbed to the crisis.  With the fall of AIG, more fear gripped the marked and the entire banking system was almost collapsing.  It was important for the government to take  prompt measures and rescue financial institution that were on verge of collapsing because this would have a huge impact on the financial sector.

There were many factors that contributed to the 2008 financial crisis. The growth of the housing bubble between 1997 and 2006 had led to 124% increase in housing prices and sudden decline in prices led to lose value and increase default of loans. There was also easy access of credit that baited people to take loans they could not repay back leading to default of loans. Low interest rates from 2001 encouraged people to borrow and fault assessment of creditworthy of borrowers further increased default of loans. Subprime lending therefore became the biggest factor that contributed to the credit crisis. Increased lending to borrowers with weakened credit histories and greater risk of defaulting loans led to massive loan default. The predatory lending gave rise to unscrupulous lenders who used bait-and-sight method to entice lenders to take loans inform of home financing but the cost of repaying these loans became higher later and the rate of default increased. Another major factor that led to financial crisis in the United States was deregulation. The regulatory framework did not guarantee tightened control of the financial sector and therefore financial instructions came up with financial innovations like shadow banking system, derivatives, and off-balance sheet financing. There were weak laws while the existing laws were also not well enforced thereby leading to the financial crisis. A number of regulations on financial sector that had been implemented after Great Depression were phased off through different acts like Depository Institution Deregulation and Monetary Control Act 1980, Gramm-Leach-Billey Act 1999 that repealed Glass-Steagall Act of 1933, 2004 relaxing of net capital rule by SEC, and others that weakened regulation of financial sector.

Closely tied to regulatory factor was corporate governance factor. There was evidence failure and weaknesses in corporate governance arrangements that eventually lead to collapse of the financial sector.  The effectiveness of corporate governance could have been realized during the financial crisis but when they were put to test, corporate governance routines showed that they were not in a position to serve their purpose and safeguard against taking of excessive risk.  There was evident greed among the executives that had been trusted to take up leadership of the financial regulations. Apart from taking home fat salaries and bonuses, executives were less concerned with the risk they were taking in name of getting more profits for their companies. Even when companies started making huge losses, executives continued to be awarded huge salaries and bonuses.  

Bank crisis in the UK

The case of bank crisis in the UK is a perfect illustration of the fact that the belief that bankers can create wealth and bring about economic productive cycle is mere illusion. Before 2001 when the bank crisis started in the UK and U.S, UK banks had no previous exposure to wholesale lending markets. This was a new experience to UK banks, which could be described as nothing more than a euphemism for collective international banks. The new borrowers in the block were Northern Rock and Halifax among others. Their entry into the market was something to be celebrated but their exit was not celebrated.

UK financial crisis was an overspill of what was happening in the U.S. The interconnectedness of the two economies meant that what was happening in one economy affected the other.  The events taking place in the U.S were fast catching up with the UK and the timeliness of the crisis in the two countries was almost the same. First, it was spread of fear and panic in the U.S market but there was little concern in the UK. No one in UK thought that the crisis that was affecting U.S subprime sector could in any way affected the UK.  On September 13, 2007, BBC revealed that Northern Rock had asked to be granted emergency financial support from the Bank of England as a last resort as the crisis made inroads into the UK. Northern Rock was among the new lenders that had relied heavily on the markets instead of the saver’s deposit to fund the mortgage lending. This means that once the confidence of the market was affected, Northern Rock was shaken from its core. In the same month, it had been revealed that the rate at which banks lend each other had risen to its highest since December 1998. The Bank of England set its base rate at 5.75%. The rise in the interbank lending rate was contributed by the fact that no bank understood how the other had fallen deep into the mucky of economic crisis.  There was general mistrust among the UK banks.

In the wake of realization of the problems that were facing Northern Rock, fear gripped the UK market.   In September 14, 2007, depositors lined up to withdraw their saving in Northern Rock. In one day alone, depositors withdrew more than £1 billion from Northern Rock, what can be considered the biggest run in the history of banking industry in UK.   Northern Rock dipped into more trouble as more and more depositors lined up to withdraw their saving until the UK government intervened and assured depositors of the security of their savings. The problem of Northern Rock continued until it was partially nationalized by the government on February 17, 2008.

 

If you are a talented student studying for a degree in a subject such as finance or accounting it is likely that you are already seriously considered a career in investment banking. Investment banking jobs have gained a reputation for offering some of the highest salary packages a new graduate can hope to earn. A couple of years ago a graduate taken on by a leading American investment bank could be making as much as 0,000 dollars a year including expected bonuses, and this high wage was attainable within the first year or two in successful investment banking careers.

Many of my outstanding candidates’ first jobs were actually where they had their internships. Therefore you need to plan your investment banking career when you are studying for your undergraduate. Aim for an internship at a reputable bank. Make it a goal for your resume to be on the radar screens of every Wall Street recruiting director by December holidays.

Trading in i-bank engages in the trading various financial instruments to earn a spread (difference between purchase and selling price) or commission (charge to client in the form of a percentage from the transactions). These financial instruments include stocks, bonds, foreign currencies, commodities, structured products and other derivative products.

Being a loan officer is also an option for some. This position involves working with customers to determine their borrowing needs, putting together loan packages for an approval or decline decision. You will have to be comfortable with reviewing tax returns and communicating with clients what determination factors will come into play for a decision on customers risk factor to the bank.

Understanding the mindsets of people is the key to asking the right questions and success to life in general. Knowing why different questions attract different responses from different people is crucial. Don’t leave it to chance or the mood of the interviewer on that day to decide what to think of you. Take control of your own interview and be prepared.

On the other hand, a loan officer’s job involves reviewing and submitting reports related to reimbursement and disposal of loans. These bank employees assist potential borrowers with loan applications have to go through numerous stringent measures to verify information related to the borrower’s identification which includes contacting employers, credit card companies if any, and previous lenders if the need arises. Normally, banking loan officers sell products to customers, such employees specialize in consumer, commercial or mortgage leading areas. Banks also employ from time to time clerical workers to process transactions and for collections in various departments who have to play the role of receptionists and secretaries. Administrative assistants in banks have to play the role of clerical bank executives.

Studies have shown that numbers are much better in catching attention. Let’s take this article as an example: do you prefer the title to be “Useful Investment Banking Tips”, or the current one: “5 Golden Rules On Investment Banking Resumes”? Most likely the latter right? In case you wonder why, numbers imply precision and give the impression that you are giving solid, detailed information to the readers. Quantify your experience whenever you can throughout the resume and see the difference yourself.

One other important thing that one would need to understand in investment banking 101 is practically the most important one, which is the promotion structure. This way, one would be able to set the goals and try to follow the chosen career path the best way that a person could. Fresh graduates armed with a Bachelors degree basically start off as invest banking analysts. From there, once they have completed their Masters Degree program, they would then go on to a higher position as an investment banking associate. Of course, these associates would be able to make more money as well as have a higher rank than simple investment banking analysts. After one passes the associate level, what comes next is the Vice President level, and then this is followed by the Managing Director level. Truly, there is an immense possibility for advancement in the investment banking career. The key step towards a bright future ahead is to get the right education as well as proper training to jumpstart one’s career in investment.

Companies get annoyed when they come to know you are not focused on the job or are toying with other career opportunities. Investment banking interview questions can revolve around what you think about the strength and weaknesses of the firm and you have to justify your answers with proof and facts.

For Internet and seminar banking trainings, here are tips that will help you choose a program. First, choose a program that best fits the job you are aiming for. Pick a program that is time-flexible, which allows you to customize class schedules, a very practical option especially for college students who are looking for part-time jobs at banks. And lastly, comparing different training programs provides for the most affordable course fees.

The is sufficiently capitalized and regulated. The economic and financial conditions here are better than in any other country. Liquidity, credit, and market studies have proven Indian banks to be resilient. They have negotiated the downturn in the global economy well.

The Reserve Bank of India (RBI) is the topmost body monitoring the Banking Industry. Any shortcomings or discrepancies are dealt with by the RBI.

The banking industry in India is divided into scheduled and non-scheduled banks. 67,000 scheduled bank branches are located in India. They consist of cooperative banks and commercial banks. The PSBs (Public Sector Banks) form the base of this sector in India. They account for 78% of the assets in the banking sector. The Private Sector banking is making headway. They are leading in mobile banking, phone banking, ATMs, and Internet Banking sectors.

Sectors of the banking industry include investment banking, retail, and private banking. Investment banking is a growing sector with more Indians looking to invest funds in mutual funds and stocks rather than the traditional fixed deposits and schemes.

Retail banking is when the bank deals with individual customers rather than corporations. Services offered by these banks are normal savings, personal loans, checking accounts, and debit/credit cards amongst others. This is also a growing sector as the drive for cashless transactions is growing. More people are opting for debit and credit cards. Private banking is where the personalized financial services are provided to individuals or corporations of high worth.

All these sectors are showing immense growth prospects. Internet banking is also gaining prominence. The phone banking sector is also gaining in popularity. Thus, the entire banking sector is growing and offers immense potential.

This is why foreign banks are increasingly establishing their base in India. JP Morgan, Standard Chartered, Bank of America, and many other international banks have established centers in India to tap its potential.

FDI in this sector has been raised. 74% FDI via the automatic route is allowed in the private sector banks. This means that the aggregate foreign investment in any private bank considering all sources should be up to 74% of the paid-up capital. In the case of nationalized banks, the Portfolio and FDI investment’s maximum limit is 20%. This cap also applies to the investment in state banks and other associated ones.

Even with the global recession, the investment in the banking industry is still prevalent though the volume may have been reduced. grew by 145% between 2006 and 2007 and by 46.6% during 2007–2008. The FDI in 2009 was down to 18.6%. However, with the recession abating the investments are sure to rise.

The government is also encouraging foreign investment in this sector, as the entry of foreign players will help the sector. FDI in Indian banking can lead to improved efficiency, better capitalization, and improved adaptability. So the government is attracting FDI, FII, and NRIs in this field.

Overall, the Indian banking industry has immense potential for further growth and expansion.

Is Islamic banking a viable alternative to interest-based conventional banking? Is it really any different from conventional finance? Does it offer a better way forward?

These and other questions face the next generation of Islamic bankers as they inherit an industry that, in just the last decade, grew from a niche market serving a largely Muslim population to a global phenomenon offered side-by-side its conventional counterpart. In the aftermath of the global financial crisis, it is now seen in a completely new light as not only an ethical form of finance, but also as a potentially superior one. First, however, we must understand what Islamic finance is and what it is not.

This article places special emphasis on equity-based Islamic finance because, while “good-enough” Shariah-compliant trade and lease based instruments currently predominate the market and manage to satisfy the letter of the law, stakeholders increasingly demand Shariah-based products that fulfill the original spirit of the law.

All banking is debt, equity, trade, or lease based. And all Islamic finance does is simply dispense with the debt. The same proven risk-oriented principles that benefited past generations of equity-based conventional bankers (more profitably than their interest-based counterparts) also ensures the success of future generations of Islamic financiers. The positive impact that Islamic-style equity has on both the profitability of a business and the well being of society contrasts sharply with the negative effects of interest-based instruments.

The demystification of Islamic banking requires an understanding of four basic points: 1) What is an Islamic bank? 2) How is an Islamic bank different from a conventional bank? 3) How is an Islamic bank similar to a conventional bank? and 4) How do the two compare in practice?

An Islamic bank is a financial intermediary that brings together the providers of capital with the users of capital in accordance with the principles of the Shariah (Islamic Sacred Law). Like conventional banks, a combination of products, services and customers loosely determines the type of banking the institution engages in: at a very basic level, investment bankers execute complex, investment-oriented transactions for large institutions; commercial bankers borrow, lease and lend; and retail bankers service consumer-oriented needs. Though increasingly there is considerable overlap across these industry specialties, with commercial banks offering investment banking expertise, investment banks providing retail operations, and retail banks evolving into full-service commercial banks, the burgeoning demand for Shariah compliant instruments at all levels of the banking value chain has Islamic banks repositioning themselves as one-stop financial shops rather than as specialist boutiques.

Islamic banks are unique in that their activities are regulated by rules derived from the Quran, sunna (Prophetic practice), and the traditional schools of scholarship. Certainly, there are banks that offer cosmetically-enhanced products that are Islamic in name only, but the increasing regulation of the industry, the improving sophistication of the customer base, and the genuine demand for authentic Shariah committees, limits the proliferation of these expedient, non-compliant banks.

An Islamic bank is distinguishable from its conventional counterpart by some basic principles, each of which is derived from the Quran, sunna, or both. While thousands of fiqh (Islamic jurisprudence) rulings operationalize specific injunctions from the primary texts, four basic principles govern at least 80% of all Islamic transactions:

: The Arabic word riba refers to “increase” or “addition”, and in the commercial context refers to any incremental increase, however great or small, above the original lent or exchanged amount. While riba is of many types, the most common kind is ordinary commercial interest, where the borrower compensates the lender with an interest payment for the right to use a sum of capital over a period of time.

Often riba is translated as usury, and because in modern times usury normally refers to exorbitant rates of interest, Muslims often mistakenly regard seemingly benign commercial rates of interest as something other than riba. In reality, however, riba refers to any increment above the principal amount, whether it is a soft, development loan charged at 1% annually or a usurious consumption loan charged at 10% monthly. So riba includes both usury and commercial interest.

: The concept of risk sharing is common to all Islamic finance transactions, whether equity, trade, or lease based. A few additional conditions make Islamic finance transactions even more equitable in many cases; such as the ruling that silent partners receive profit no more than is proportionate to their investment, while they may receive less; and that working partners may enjoy more pre-agreed profit than is proportionate to their investment, reflecting an emphasis on reward for work rather than reward for merely possessing capital.

The popularity of debt-style, interest-free instruments like Murabaha (mark-up financing) reflects the infancy of the Islamic banking industry and the tendency to gravitate towards something that mimics interest. But even in Murabaha transactions, where the bank intermediates a purchase by buying the good and charging a mark-up in advance, the condition imposed by the Shariah, and absent in a conventional loan agreement, is that the Islamic bank assumes some of the risk as well by holding the good for a period of time. Few conventional banks will choose to own anything, even if only for a short period.
This distribution of risk is itself an equity-based principle. Such seemingly insignificant conditions are often lost in contractual minutiae, and often confuse the layman into thinking that there is no difference between a given Islamic product and its conventional counterpart, but when things go wrong, the details in an Islamic contract place particular emphasis on the equitable distribution of risk.

: Because Islam restricts the treatment of money as a commodity by declaring unlawful any profit earned from the exchange of like currencies, regardless of the time value of money, transactions are backed by an asset or a service. Asset and service backing ensures that real assets and inventories are created, rather than pyramidic money-lending schemes where money simply creates money and market volatility increases unchecked. Even monetary losses due to inflation are overcome by denominating the exchange of money into an asset with intrinsic utility, such as gold.

Because Islamic banking relies on asset and service backing rather than interest payments, conventional bankers often point to Islamic banking’s inability to service demand for short-term loans. This is less true now than ever before. Islamic banks have now gained the expertise and scale necessary to conduct a broader set of activities. Across the world, Islamic bankers now provide car and home loans, fund short-term working capital requirements, and offer a range of shelf-like instruments.

: Contracts play a central role in Islam. The uncertainty of whether a contractual condition will be fulfilled or not is unacceptable in the Shariah and creates gharar (ambiguity or uncertainty leading to dispute). Conventional insurance, interest, futures and options all contain an element of contractual uncertainty. This is distinct from commercial uncertainty, such as whether a business will be profitable or not, which is acceptable because there is an asset (such as property, plant and equipment) or a service (such as labor) underpinning the risk.

Some of the above mentioned differences between Islamic and conventional banking seem inconsequential, even trivial to some, but these ostensibly insignificant conditions spell the difference between financial dynamism and financial disaster, as will be shown later.

The similarities between Islamic banking and conventional banking far outnumber the dissimilarities, because the basic principles of finance remain the same. Companies still only raise cash in one of two ways, with the first method conforming to Islamic principles: 1) by issuing equity, or stocks, done by selling shares in a company, where the rise and fall of the share’s value reflects the holder’s share in profits and losses; and 2) by raising debt, or large IOUs called bonds, which obligate the company to repay the holder some fixed-income at some given maturity. Like conventional banking, Islamic banking enables the profit-motive, fosters a spirit of transparency and corporate responsibility, and ultimately seeks to promote shareholder value, all within the guidelines of the Shariah. Capitalism, if you will, without the after-taste.

So how do equity-based Islamic banking and interest-based commercial banking compare in practice? The question should be answered on three levels: 1) the profit impact; 2) the economic impact; and 3) the social impact. It is worth emphasizing that in the longer term these levels are inter-related. No company profits unfairly, or suffers adversely, without having a negative residual impact on the economy. And no economy suffers without some concomitant social cost:

: Comparing the profitability of equity and debt, history is quite telling. Between 1926 and 1999 in the United States:

invested in small stocks would now be worth ,117;
in large stocks, ,351;
in corporate bonds, ;
in government bonds, ; and,
invested in an extremely safe Treasury bill would now be worth .
Out of 54 possible 20-year periods between 1926 and 1999, stocks outperformed bonds all 54 times. For the risk averse among us (i.e. bondholders), in bad times the highest returning bonds still managed worse than the lowest returning stocks. In the worst 20-year period for large stocks, grew to .11, and for intermediate government bonds, grew to .58 (Ibbotson Associates, 1999). We have to rethink our concept of risk. The perceived long-term safety of bond investing is as illusory as its profitability is real. Equity is not only historically more profitable but, as these numbers convincingly show, the safer long-term choice. Even risk-adjusted returns are higher for equity than they are for debt.

: The primary objective of most commercial banks is to increase profit by extending loans to creditworthy individuals at the highest possible rate while undertaking the least amount of risk. But this objective focuses both borrower and lender on repayment, not profit. Typically, the lender has little active interest in the borrower’s business; only an interest in the borrower’s ability to repay, often at all costs, including the well being of the business and the borrower. Equity focuses on profit (and loss). If the principal (lender) has an equity share in the business, he will have an almost exclusive focus on the profitability of the business. Knowing that a loss is possible, the principal will make every effort that the agent (borrower) succeeds.

In a debt transaction the borrower loses everything if the business fails, and is still left to repay. While in an equity transaction, the agent loses nothing if the business fails, besides time and effort, and has nothing to repay. Further, debt inhibits innovation by putting undue focus on repayment schedules while equity promotes innovation by focusing on the business itself. Small, growing businesses need to invest time and money to innovate before becoming profitable, a task made difficult by even the most lenient repayment schedules. Early repayment by the borrower precludes reinvestment into innovating the business, while delayed repayment increases subsequent payment sizes.
Too, the confrontational nature of interest-based lending debilitates business. In a debt transaction, the lender and borrower work in conflict, having to negotiate and renegotiate repayment schedules and lending rates. In an equity transaction, the principal and the agent work in concord to make more money.
From a distributive justice perspective, debt tends to centralize capital into larger corporations that are more able to match stable cash flows with repayment schedules. Equity, on the other hand, is more distributive in that it favors smaller companies that provide a greater profit potential. Speculative debt-based borrowing, including borrowing to finance equity purchases, triggered almost every major financial disaster in the modern capital market era. The negative effects are not merely money-deep; debt affects the collective consciousness of the business community, creating a demeaning and disempowered “borrower culture” rather than a vibrant and productive “investment culture.”

: As the Quran mentions in relation to wine and gambling, “In them is great sin, and some profit for men; but the sin is greater than the profit.” (2:219) So too, interest has its share of convenient, short-term advantages, but like other evils, comes at the price of a broader social impact.

Real world examples are illustrative. The IMF and the World Bank aggressively disbursed loans for decades in the name of economic rehabilitation and poverty alleviation. Now recipients of their soft loans and structural adjustment programs are deeper in debt than ever before. Their non-usurious, low-interest loans compounded over time to create a situation where interest payments now exceed original principal amounts often by several orders of magnitude. The world’s poor now pay several times more in interest payments than they do in all social services combined, leaving us with damning evidence that the debt-based sincerity of the IMF and the World Bank only served to spread world poverty.
At a commercial level, interest-based lending centralizes capital into fewer hands. The common man puts a higher proportion of his wealth into interest-based instruments than the wealthy man because he lacks the capital to make long-term investments and requires a ready source of liquidity, like a bank deposit, which returns a low rate. At the same time, the common man’s lower disposable income requires him to continuously borrow capital for consumption purposes, like financing a car, a home or an education. For this, the same man earns a low interest rate and is charged a high borrowing rate.
The owners of capital, on the other hand, include high-worth, decision-making stakeholders of society, like banks, corporations, the government, institutional investors and wealthy individuals. By charging interest, they access the borrowers’ and depositors’ capital at relatively low rates and allocate them with other owners of capital (often in the form of equity-based investments) for significantly higher profits, which serve only to centralize capital among owners. This is neither conspiracy nor collusion. This is the nature of interest. The lines between borrower, depositor and owner are rarely well defined, but one fact remains: the nature of interest-based lending is such that the lower one’s income, the higher one’s borrowing rate and the lower one’s return on deposits. Equity, on the other hand, levels the playing field, so that large and small investors share identical returns.

With global trends headed in the direction of equity (evidenced by the dramatic emergence in recent decades of the individual investor; the success of the mutual fund; the proliferation of new stock exchanges and equity indices; and an increase in global privatizations) there seems to be a collective acknowledgement that equity is the investment of choice. Debt continues to be a corporate mainstay as the cheaper source of financing, particularly among large, stable borrowers able to reduce their cost of capital by matching expected cash flows with future debt repayments. But to choose debt over equity has severe implications, not just for the business itself but also for society as a whole. Leaving Islamic banking as not only a viable and profitable choice, but also a responsible one.

: Ethica Institute of Islamic Finance.

The study seeks to provide a critique of the theoretical framework of economic governance as it relates to the financial sector in Zimbabwe and identify institutions in the financial sector and explain their roles. It also seeks to unpack the concepts related to the banking or the financial sector, with specific emphasis on the role of central banking from a policy and developmental perspective. Outline of the economic history of the development of the financial sector in Zimbabwe and the regulatory framework governing the financial sector will also be given. To capture the community’s view and experience of the financial sector within the period 2003 to 2009, recording of community voices has been done, with main emphasis on the views around the  inclusion or exclusion, popular notions of monetary policy and banking, and impact (perceived or real) of these on people’s social conditions. Finally the study seeks to equip the poor and grassroots communities and the working classes, to engage meaningfully in discussions on the role of monetary institutions as part of an ongoing engagement on economic and public policy advocacy.

 

There has been increased call for a greater attention to the development of financial systems in many countries all over the world. The financial sector is well known for its purpose of allocating savings, from surplus units to deficit units. One can have plenty of resources (cash or wealth), but is not prepared to use or consume in the current period but later in the future. And on the other hand an economic agent may need funds for a specific purpose currently but due to some reasons have no adequate funds. So financial institutions help in collecting funds and match the current needs of some investors and hence creating economic development by avoiding idle funds. Some researchers (Herring and Santomero (1991)), argue that the direct impact of financial institutions on the real economy is minor, while the indirect impact of financial markets and institutions on economic performance is extraordinarily important.

 

A financial system which is efficient and healthy is a vital and necessary component for faster economic development. If a financial system is efficient, then it should show profitability improvements, increased funds intermediation, better prices for financial products and quality services for consumers. If the financial system is under tight regulation, financial markets would not be able to function efficiently and the use of resources would not provide desired outcomes. It should also be noted that reforms in other sectors have less impact on the overall economic development if the financial sector is under control, Edirisuriya (2007).

 

As part of the economic growth strategy, many economies have aimed at improving their financial sector. Ghana structured its financial reforms in two phases, FINSAP 1 and FINSAP 2 (Financial Sector Adjustment Program) and the reform for Non- bank financial institutions credit, Gordon (2008). An assessment of the impact of this policy on savings, investment and the growth of income (GDP) in the Ghanaian economy was undertaken by Gordon (2008) and positive impact of the financial sector on the economy. Previously, Ghana operated a tightly regulated financial system and the impacts of these policies on economic development were found to be dismal. The country turned to the International Monetary Fund (IMF) for assistance to reshape the macroeconomic structure, and one of the policy packages was to reform the economy’s financial system. Financial liberalization thereafter affected positively the interest rate, savings, investment and GDP in Ghana. Sri Lanka also went ahead with its financial sector reforms about three decades ago, Piyadasa (2007). The reforms were also spearheaded by the IMF and World Bank, and they encouraged the opening up of financial markets for foreign and domestic competition and to encourage efficient functioning of financial market with less government interferences.  

 

Major economic factors to look at include; the inflation level, rate of economic growth, unemployment levels, balance of payments and the exchange rate (Business Studies Online). A well functioning financial sector is able to influence positively on the economic factors. High levels of inflation have a number of problems; people try to save money and so will spend less, high prices leading to people becoming worse off, costs will increase and exports will decrease hence exporting companies greatly affected leading to unemployment. The Zimbabwean nation has experienced such problems and do not wish to return to such time soon, savings have been eroded.

 

Capital goods production is one of the best ways an economy achieves a long lasting sustainable and stable economy. Financial services stimulate savings, investment and growth of GDP and for that matter economic growth by increasing the rate of capital accumulation and by improving the efficiency with which the economies use that capital, Gordon (2008). Well functioning banks spur on technological innovation by identifying and funding those entrepreneurs with the best chances of successfully implementing innovative products and production process.

 

The research seeks to explore the financial sector in Zimbabwe, its impact on the economy and how the Central bank policies affect the operations and efficiency levels in the economy. It dates back during the crisis period (2003-2009). The crisis originated from Central bank policies adopted during and before the crisis. The Reserve Bank of Zimbabwe (RBZ) adopted an uneconomic formula to control the level of money supply in the economy, and hence it failed to control the economy. The RBZ failed to control its independency status from the political family and hence supported uneconomic projects by printing excess money.

 

The relationship between the RBZ and other financial institutions during the crisis period can be explained y what the RBZ called ‘Financial Indiscipline’ in 2008. It is reported that during the last quarter of 2008 the financial sector had fallen back into territories of indiscipline and general malaise,resulting in the contamination of ethics in such institutions as the Zimbabwe Stock Exchange (ZSE) which invented the deadly phenomena of “burning money”. Indiscipline in banking and stock markets is precisely what has largely been responsible for the global economic crisis particularly in the USA, RBZ Monetary Policy (2009).

 

The RBZ Governor, was quoted in his Monetary Policy Statement, blaming the Financial sector and warning it against indiscipline in the market;

“As true as the sun rises and sets each day, the “miracle” of “burning” money could not be sustained by men and women born of flesh and pretending to have the supernatural powers of our Lord Jesus Christ. It was soon to back-fire and consume those who were stroking the fires in the first place.”

 

The Governor argues that it is the activities of the Financial sector that transforms to the Central bank to be blamed, hence he has warned it several times, and has put measures to control their activities. The Governor specified that new measures constitute a war against idleness as without some gainful activity, citing roadport and world-bank sextillionaires destined for the starvation market. Hence from this evidence the RBZ has both social and economic influence on individuals and companies, and it is the impact of its influence that we seek to analyse. It was pointed out that individual and collective actions of the past have not taken the economy anywhere, particularly in the areas of advancing collective socio-economic programmes, hence RBZ initiated change of behavior, even from the politicians and diplomats. The RBZ set up a 5-year framework to guide the financial sector activities so that no shift from core banking business to speculative transactions.

 

 

Zimbabwe’s financial sector is relatively sophisticated and consists of the Reserve Bank, discount houses, commercial banks, merchant banks, finance houses, building societies, the Post Office Savings Bank, numerous insurance companies and pension funds and a stock exchange. As at 25 January 2009 Zimbabwe has 15 commercial banks and 4 building societies under the supervision of the Reserve Bank of Zimbabwe.  

 

Commercial banks have been and are one of the most important contributors of private sector credit and therefore highly influential over most areas of economic activity. However, currently they are facing financial constraints, as the Reserve bank cannot perform its function as a lender of last resort due to the phasing out of the Zimbabwean local currency. Commercial banks have in fact changed their loan structure, they are now lending short term loans, just for their survival and to certain credible analysed economic agents. Short term loans are very costly as the interest is very high. They can’t be used for sustainable investment, as capital investment needs to be matched with long term loans. Hence, various organisations are financially constrained, with several Small and Medium Enterprises (SMEs) shifting their operations, and the shift is not proper for the growth of the economy as it creates gaps in the economy. The banking sector has since facing problems; they have retrenched their workforce, as they have shut some operations due to the crisis.

 

The performance of the financial sector currently can be explained by the return on investment registered through the Zimbabwe Stock Exchange (ZSE) market. Very few companies registered on the stock exchange are making huge returns. The volatility of the Mining Index and Industrial Index is very low, indicating that it is not worth to invest in shares, as the return is almost to nothing. Also individuals are not able to generate savings to invest in the stock market, as many are earning very low salaries, far below the Poverty Datum Line. Workers are withdrawing all of their salaries in their bank accounts, leaving nothing for the banks to do their own investments. Banks are surviving on the bank charges and minimum balances for investing, making it hard to generate money for lending to the needy investors. Currently the economy is comprised of deficit agents who need to be rescued in the financial drought and very few surplus agents.

 

 

A central bank is known as the apex of the banking structure. A central bank is distinguished from a normal commercial bank because it has a monopoly on creating the currency of that nation, which is loaned to the government in the form of legal tender. Central banks around the world have more or less the same roles they perform for the benefit of the economy, what differs is their efficiency and scale of operation. Most importantly is the level of central bank independency to political influence. Most of the rich countries today have independent central banks, that is, ones which operate under rules designed to prevent political interference. Examples include the European Central Bank  and the Federal Reserve System in the United States.

 

In a summary the general functions can be listed as follows;

1. Supervision of the entire banking system in the economy. (2) Should act as the government advisor on monetary policy. (3) Issue of banknotes and coins (printing money). (4) Acting as banker to other banks. (5) Acting as banker to government. (6) Raising money for the government. (7) Controlling the nation’s currency reserves. (8) Acting as “lender of last resort.” (9) Liaising with international bodies.

 

However it has to be noted that on each and every function, each country’s Central bank has its own level of efficiency depending on the resources, rules governing operations, flexibility and many other factors. The Central bank of Zimbabwe commonly known as the Reserve bank of Zimbabwe (RBZ) also performs some of the above functions and has its own efficiency levels and hence affecting the transition of the economy’s growth pattern.

 

 It is also worthy to explain the several functions of the Central Banks in terms of origin and development perspective. For every Central bank, there are basic functions that it has to undertake for the public’s benefit and also the economy in general. It is taken as the leader who should operate by example and should spearhead the path of which agents are to take. Hence the Central Bank has both Economic and Social influence.

 

Traditional functions refers to the obvious roles that the bank should be carrying. If the Central bank is not efficient in these roles, it can be quickly criticised by every economic agent. Inefficiency is quickly detected.

 

The functions can be given as follows;

1) Public confidentiality. (2) Uniformity in money issued. (3) Easiness in credit control (4) Control in value of money. (5) Economy (6) Elasticity (7) Stability (8) Easiness in monitoring and controlling

 

If the functions are well undertaken by the Central Bank, the economy is said to be stable and economic agents should be earning normal business profits, workers earning decent salaries, goods well priced and social status acceptable.

 

Developmental functions refers to those functions that are strategic in nature and helps the overall economy to be competitive to other nations. They are associated with various economic policies that guide the entire nation on good business practices that enhance efficiency. The functions involves publication of economic data that can be used by various economic agents for their own analysis and economic forecasts, so as to determine the best ways of operation that is profitable and sustainable.

 

The functions can be listed as follows;

1) Economic development (2) Development of banking system (3) Contribution to the development of financial institution (4) Publication of economic data. (5) Supporting of loan to the poor sector (Empowerment) (6) Establishing the commercial banks in joint ventures (7) Development finance

 

If the Central Bank is not correctly partaking the functions, political influence comes into play, because they determine the efficiency of the ruling party. Also the efficient levels of the Central bank towards the developmental functions may be affected by the level of independency it has from the political world.

 

The efficiency and smooth running of many economies depends on the activities and functions of their Central banks, and from this phenomenon will make it necessary to analyse each basic function carried out by the Reserve bank of Zimbabwe.

 

This function refers to the issue of printing paper money and is not as simple as it might seem. Only the central bank has the right to issue bank notes and coins in the economy and no one else. Printing of paper money and issuing of coins is highly depended on an economic formula of which if the formula is bypassed, it will change the path of economic development of the nation and hence causes inflationary effects. During the 2003-2009 period, the RBZ abuses its right of printing and issuing notes and coins and end up printing excess money and hence inflation increases exponential and the economy was unstable. It uses the wrong formula, of issuing the notes and coins. A correct economic formula matches the level of reserves to the amount of paper/ discretionary money in the economy. Due to the abuse of the role, the Zimbabwean dollar, lost its credibility in the economy, and turned into unwanted currency. Economic agents preferred stable currencies than the local currency, enforcement of laws was done to ensure continuous existence of the local currencies but could not work. Penalties were imposed, but still could not work as the RBZ continuously printed more money to finance government expenditure. ‘Good’ money replaced ‘bad’ money in the Zimbabwean economy. Until such a time when the local currency was completely rejected for any transaction, the authorities were forced to authorise the use of other currencies for business transactions (Multicurrency regime).

 

Most payment these days do not involve cash but cheques, standing order, direct debit, credit cards and so on, however cash is important as bank’s cash holdings are a constraint on creation of credit. As of now the RBZ is no longer able to perform the function of issuing notes and coins, because the Zimbabwe has no currency right now. The economy is using South African rands and the United States dollar for business transactions. The amount of forex in the economy depends on the strength of attraction from the services the economy is rending to other nations, donors and credit from international organisations.

 

For the economy to be well function, organisations should be working at full capacity and with no constraints. One major constraints organisations face is the financial constraints. Companies usually obtain loans from banks and financial institutions, ranging from short term loans to long term loans (mortgages). However there is a time when banks are not able to meet demand and hence the Central bank has to be the lender of last resort. The government treasury bill and bond markets are covered by the central bank. It can offer in many types, there are 30 day treasury bills, 90 day treasury bills and 180 days treasury bills. One good thing with the Central bank loans is that they are cheaper as compared to commercial bank loans.

 

The RBZ currently is not able to act as the lender of last resort, there is no production of funds around its activities and neither can it print as there is no currency. The RBZ has lost its credibility, with the economy, other nations and development banks. In fact, it is struggling to pay its own debts, it has accrued during crisis period. Therefore, the bank cannot extend its hands to others rather is waiting for such favours.

 

Because, the Zimbabwean nation currently has no local currency of its own, the RBZ cannot fully advise the government on the central issue on monetary policy. The role implies that the RBZ would control the level of money supply in the economy to allow smooth business operations, and avoid inflationary effects. However, for the monetary policy statement is still issued in the economy, only to explain the happenings in the economy as far as interest rates are concerned. The monetary policy is no longer the road map which economic agents rely on, and it has lost its traditional importance.

 

The Central bank should be at the top of all other banks and hence regulating and monitoring the activities of the sector. The RBZ was in charge during the period, it was monitoring the minimum capital requirement levels. During the period some banks which were not performing according to the required level and not in line with the set regulatory framework were forced to close and some merged, for example the Time Bank was closed, Intermarket Bank was swallowed by ZB Bank family.

 

During the crisis period the RBZ engages itself in various social programs, for example empowering citizens through the Mechanisation Programme. This was of great importance fro some individuals, although not all people were involved and the way it was done through excess printing of money. The program raises social RBZ from the perspective of the awarded population n the Agricultural sector. The RBZ also engaged itself in the housing financing schemes, giving food vouchers to the poor and sourcing cars and perks for court judges. However, there has been debate around the manner in which the bank has traversed its monetary policy duties to usurp the fiscal and other roles. The manner in which this institution has sought to control the mediated public sphere through mostly unorthodox means is said to have fuelled the crisis and has created social inequality as their policies were in quasi format and not able to cover the total population but rather the selected few.

 

The Central Bank is at the top of all financial institutions and of course it is the regulator of all the activities in the financial sector. However, the Central bank receives proposals from the various institutions on the activities that might need to be undertaken to improve the sector and profitability of the institutions. Apart from the Central bank’s influential role, institutions have their own part to take. According to Posen (2006), central bankers cannot count on banking supervisors or budgetary officials to stick to the straight and narrow, even if one assumes that a politically independent central bank will pursue largely the right policy. Japan in the 1990s is a particularly salient illustration of the dangers of lack of coordination between financial and monetary authorities. Arguably, there was a three-way game of chicken between the Bank of Japan, the Ministry of Finance, and the new Financial Services Agency that paralyzed policy for the second half of the 1990s.

 

Central banks are not that powerful that financial institutions can be completely guided by unfavourable policies of the Central banks because of imperfect information and the speed at which researches are made by central banks and individual institutions. Researches by individual institutions are more efficient and faster than those by Central bank because Central banks broaden their research to cover the whole economy. So financial institutions should convince and prove their formulas to the central bank for approval and not only wait for policies by the Central banks. Innovation is the only way in which the financial sector relies on to reduce transaction costs.

 

Pressure applied by international organizations such as the IMF and the World Bank and the introduction of new technologies have forced authorities to relax controls making the financial sector more competitive and efficient in many countries (e.g Ghana and Sri Lanka) whose financial reforms have contributed to economic growth. Therefore for Zimbabwe financial institutions should continue to engage in technology invention despite tight policies from Central bank. Public awareness should also be done to increase the number of participants in the sector. Lack of financial literacy among the people and lack of clear directions from the government to the financial market affect progressing efficiencies further, Piyadasa (2007).

 

Effective communication can be an important and powerful part of the central bank’s toolkit since it has the ability to move financial markets, to enhance the predictability of monetary policy decisions, and potentially to help achieve central banks’ macroeconomic objectives, Blinder et al (2008). This means that if information is slow or incomplete between the Central bank and the whole financial system problems arise making it difficult to achieve economic goals. The inability to meet economic targets will affect the society as a whole both economically and socially.

 

A few decades ago, conventional wisdom in central banking circles held that monetary policymakers should say as little as possible, and say it cryptically, Blinder (2008). Communication policy has risen in stature from a nuisance to a key instrument in the central banker’s toolkit. As a result, many central banks have become remarkably more transparent and have started placing much greater weight on their communications. The Reserve Bank of Zimbabwe, has been communicating through presentation of monetary policy, magazines and newsletters and newspapers among other methods in an effort to give information to the financial systems on its policies. However, it is the quality of the information that also matters and implications associated.

 

Official statements, reports, and minutes appear to have the clearest and most consistent empirical effects on financial markets. The evidence on the impact of speeches is more mixed. But it, too, is mainly supportive of the idea that central bank communication “creates news.” Communication can be divided into “short-run” central bank communication and “long-run” central bank communication depending on the scope and time horizon objectives.

 

it is widely accepted that the ability of a central bank to affect the economy depends critically on its ability to influence market expectations about the future path of overnight interest rates, and not merely on their current level.

 

The Reserve Bank of Zimbabwe indicated specifically the guidelines to be followed by the banking sector, of which violation was financial indiscipline. This was to ensure uniformity in the sector, so as to manage the crisis. It also shows that the banking sector is well controlled and monitored by the RBZ.

 

 Diagram.

 

Whilst it is a good idea that the Central bank controls and monitors the development in the financial/banking sector, it is also worth for it to adjust and revise its rules and regulations in the earliest time that allows flexibility and innovation in the sector. The RBZ policies are in place for a long time, such strategies are not suitable for a developing and high innovative economy like Zimbabwe. The Zimbabwean financial/banking sector is trying to race with other nations to book a competitive level in the international market. With increasing globalisation there is increased linkages among nations as there are now increased numbers of travellers, the banking sector should be faced by both exogenous and endogenous policy guides.

 

The relationship between the RBZ and Non-Bank financial institutions is one sided as the former is not satisfied by the freedom they enjoy. According to the RBZ there is an absence of a well defined and comprehensive regulatory prudential supervision framework for the Zimbabwe Stock Exchange, Stock Brokers, Insurance Companies and Pension Funds and this has significantly compromised financial stability. Illegal transactions, indiscipline and reckless disregard of rules and regulations have been detected in the sector. There are no prescribed educational credentials for registration of stockbrokers. During the period under study most pension funds and insurance companies were not complying with the minimum prescribed asset requirements of 35% and 30%, respectively.  Hence the RBZ was calling for compliance.

 

The minimum capital requirement  for various institutions were set as follows;

 Diagram.

 

While it was good to have these minimum capital requirements, many companies failed to comply and this automatically indicate that the levels set were quite too high for the period. Any reforms based on such set targets are deemed inappropriate and likely not ensuring stability. The Central bank has to consult various organisations to reach an economic minimum capital requirements, this ensures the smooth operations among institutions. The RBZ should welcome suggestions from the public and various economic agents apart from its research and monitoring management tool kit.

 

 

The Zimbabwe financial sector, although it is currently underpinned by various constraints, it remains one of the best organised sectors in the economy, and strives to improve economic performance. The sector greatly needs the support from the government, implying that means the government should come up with policies that do not interfere with the innovations in the sector. The sector is always the pioneer in innovation and development. The Zimbabwe Stock Market is the second best in Africa after the Johannesburg Stock Market, and this shows that constant support and development of the sector should be done to keep and improve our position. As part of development of the sector, derivative markets can be reintroduced in Zimbabwe, as they improve society relationship and improve risk management for investors. Derivatives improve production through certainty of prices, and through the use of futures and contracts.

 

As the banking sector is the leading sector in most financial systems, the reforms should be mainly directed towards the banking sector. Most of these reforms in the past were mainly advocated by the IMF and the World Bank. To improve the banking sector there are some recommendations worth to be taken care of to ensure efficiency and involve improving private sector participation in the financial sector, removal of restrictions on banking products such as interest rate and loans, exchange rate relaxation, opening up of financial markets for foreign and domestic competition and to encourage efficient functioning of financial market with less government interferences. If banks remain weaker, then they will continue to depend on public support, Petra (2010).

 

The research found out that financial services stimulate savings, investment and growth of national income (GDP) and for that matter economic growth by increasing the rate of capital accumulation and by improving the efficiency with which the economies use that capital. Schumpeter (1912) contends that well- functioning banks spur on technological innovation by identifying and funding those entrepreneurs with the best chances of successfully implementing innovative products and production process. Foreign banks should be allowed to compete with state owned and private sector financial institutions in varying degrees.

 

Financial reforms should mainly be directed towards relaxing the regulatory measures and reducing state’s grip on the system.  It should be noted that developed markets are easily able to adjust to new reforms whilst it is not so easy in emerging market countries. There is a possibility that some temporary economic destabilizations may occur at the beginning of certain reforms. Study on seven countries conducted by the IMF to examine linkages between financial sector reforms and financial crisis has identified a number of destabilization factors (Sundararajan and Balino, 1991). Hence developing nations should not quickly reverse a policy when destabilization occurs because policy makers lose credibility yet their policy may be sustainable in future. Higher level of social rigidities is one of the dominant factors significantly affecting the financial markets and this slows down the benefit of financial reforms.

 

Poorly designed or poorly executed communications clearly can do more harm than good; and it is not obvious that a central bank is always better off by saying more. In practice, central banks do limit their communications. In most cases, internal deliberations are kept secret. Only a few central banks project the future path of their policy rate. Communication is not pre-commitment, that is communication should not be confused to commitment, a public announcement requirement could impede timely and appropriate adjustments to policy.

 

Central bank communication is also a two-way street: It must have both a transmitter and a receiver, and either could be the source of uncertainty or confusion. Moreover, on the receiving end, the same message might be interpreted differently by different listeners who may have different expectations or believe in different models.

 

In conclusion, policies to improve the financial sector should be socially acceptable and socially related. There should be a designed way that links the Central Bank policies and the public view, so that any strong disparity should be justified. For every policy, target population should be seen benefiting from the policy, because it has been argued that, different economic agents are benefiting more than the defined target.

 

As it has to been noticed by various individuals’ testimonies, the period in which the financial sector is in disorder gives people a very hard time because of its direct impact to the economy. Hence it is advised that the authorities should design policies that are in line with the financial sector development and hence it is socially acceptable. Economic development is directly connected to financial development, although some proposed a two way causal effect of the two. Zimbabwe’s financial /banking sector contributes to the level of economic growth, hence should receive adequate support.

Bhattarai, K.(2003) Role of financial markets in an economy, department of economics, University of Hull, UK

Blunder et al (2008),”Central bank communication and monetary policy: A survey of theory and evidence ,” Working Paper Series No. 898 / May.

Disyatat, P (2009): “Unconventional monetary policy in the current crisis”, BIS Quarterly Review, pp 6–7.

Gordon Newlove Asamoah (2008), “The Impact Of The Financial Sector  Reforms On Savings, Investments  And Growth Of Gross Domestic Product (GDP) In Ghana.” International Business & Economics Research Journal – October, Volume 7, Number 10

Panetta, F, T Faeh, G Grande, C Ho, M King, A Levy, F Signoretti, M Taboga and A Zaghini (2009): “An assessment of financial sector rescue programmes”, BIS Papers, no 48, pp 59–64.

Petra Gerlach (2010), “The dependence of the financial system on central bank and government support.”  BIS Quarterly Review, March.

Piyadasa Edirisuriya (2007), “Effects of financial sector reforms in Sri Lanka: Evidence from the banking sector,” Asia Pacific Journal of Finance and Banking Research Vol. 1. No. 1.

Reserve Bank of Zimbabwe Anti-Money Laundering Capacity Building Workshop, Reserve Bank Training Centre, Harare, Zimbabwe, 27 September – 6 October 2000

Reserve Bank of Zimbabwe, Monetary Policy Statement, January 2009

Zimbabwe: Survey of Financial Institutions.

In general, the ultimate reason why individuals and organizations to handle investments. To understand, investment banking, we must first understand its roots. The term “investment” comes from the term “Vestis” which in Latin means “clothing” and was used to describe the act of commissioning resources in the pockets of another. As the Latin term, the investor puts in the pocket of the assets of another company; this is where investment banks come in.

 

Basically, the investment Cayman banking means that the customer’s assets in investment banking bought. The customer expects to grow the capital asset acquired and dividends. In fact, the investor will not work on something else to do the original purchase price.

 

Typically, a bank a financial institution. Usually with being the central point for which the customer can enter into transactions affected. The customer gives the money in various forms of cayman banking services and profits of some of the interests of this entry. The bank, which in turn invests client assets in companies or allows customers to borrow money to grow interest on the original investment. In addition, investment banking is a certain type of banking transactions that are related and limited to the financial markets. This type of banking refers to investment as a whole.

 

Investment banks are two kinds. The fundamental questions of the investment banking stocks and bonds to customers for a fixed amount in advance. The bank invests the money of customers who buy stocks and bonds. These investments will differ between banks. In countries where it possible to do this is to investment banks have their networks of financial institutions and credit than they use. Some also invest in real estate and construction. The client with stocks and bonds will receive the payment of benefits out of your money in a given period. It can be shown that the client and the investment bank from the customer’s initial investment will be facilitated. Since these banks know the details of his profession, it is not for companies, small businesses and large corporations seek your assistance in matters relating to mergers, acquisitions and other corporate activities rarity.

 

The second type of investment banks is the investment bank. These banks are in trade financing and provide capital for business enterprises, not involved in the form of loans, but of actions. Since these investment banks rely on the security measures that fund companies only left their mark on the world of business. The new businesses are generally not funded.

 

However, the flexibility is needed in the economy. Therefore, many banks have developed to encompass all aspects of the banking system to meet the needs of a variety of customers. These deposits of banks, savings banks and credit institutions offer regular customers, while providing investment developed economically.