Welcome To My Presentation

Md. Shafiqul Islam Id: 219 (MBA), 16th batch

Dept of Banking & InsuranceUniversity of Dhaka

The Financial System: A Global

Perspective• The financial system is more

connected.• Financial institutions are more

global.• Only 3 of the 30 largest banks

in the world are US institutions.• Most nations have a central

bank.• Bangladesh is doing well in

world economy for last one decade.

Overview of the Population and Economic Situation of the US

Total population 320.09 million Gross Domestic Product (GDP) is US$

16,800 billion. Per capita GDP is US$ 45863.02. Economy grew at an annual rate of 0.2

percent in the first quarter of 2015

 Overview of the Population and

Economic Situation of the Bangladesh Total population 154.7 million. The Gross Domestic Product (GDP) in

Bangladesh was worth 129.86 billion US dollars in 2013.

Per capital income 1190 us dollars. GDP growth rate is now 6.01 percent.

Learning Goals

Outline the structure and importance of the financial system of U.S.A and Bangladesh in the global perspective.

List the various types of securities (U.S.A and Bangladesh)

Define financial market, and distinguish between primary and secondary financial markets. (U.S.A and Bangladesh)Describe the characteristics of the major stock exchanges.

Discuss the organization and functioning of financial institutions. (U.S.A and Bangladesh)

Explain the functions of the Federal Reserve System and Bangladesh Bank , the tools it uses to control the supply of money and credit.Evaluate the major features of regulations and laws affecting the financial system. (U.S.A and Bangladesh)

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The Financial System

The financial system is the process by which money

flows from savers to users.

Understanding the

Financial System

• Financial System– Savers

– Users

– Financial Institutions

– Financial Markets

• Savings is a function of many variables.

• Funds can be transferred between users and savers directly or indirectly.

Understanding the

Financial System of U.S.A

Financial System– Financial market

– Nonbank financial Institutions

– The banking system

Understanding the

Financial System of

Bangladesh

Financial System Formal sector

Bank, FIs, NBFIs, Insurance Companies, Capital Market Intermediaries

(Brokerage Houses, Merchant Banks), Micro Finance Institutions (MFIs).

Informal sector private intermediaries which are completely unregulated

Semi-formal sector HBFC, PKSF, Grameen Bank, NGOs.

Financial Markets

• Primary Market – firms and governments issue securities and sell them initially to the public.– When a firm offers a stock for sale to the

general public for the first time.

• Secondary Market – collection of financial markets in which previously issued securities are traded among investors.

Regulator of Financial Markets of

U.S.ATypes of instrument Federal Government

RegulatorSelf-RegulatingOrganization

Corporate stocks/bonds Securities & Exchange commission

National Association ofStock Dealers

Asset-backed securities None None

Municipal securities None Municipal Securities Rulemaking Board

Money market instruments

None None

Futures Commodity FuturesTrading Commission

National FuturesAssociation

Options Commodity FuturesTrading Commission

Options ClearingCorporation

OTC Foreign exchange None None

Financial Markets of Bangladesh

Regulator of Financial Markets of

BangladeshTypes of Markets Government

Regulator

Money Market Bangladesh Bank

Capital market BSEC

Types of Securities

• Securities– Financial instruments– Obligations on the part of the issuer

• Businesses and Governments– Provide rate of return to purchasers

• Money Market Instruments• Bonds• Stock

Money Market Instruments of

U.S.A• Short-term Debt Securities

– Issued by governments, financial institutions and corporations

• Investors are paid interest for the use of their funds.

• Generally low-riskU.S. Treasury bills, commercial paper, bank certificates

of deposit ,Government agency notes, Local government notes, Interbank loans , International agency paper

Money Market Instruments of

Bangladesh Comprises banks and financial institutions as

intermediaries 20 of them are primary dealers in treasury securities Interbank clean and repo based lending, BB's repo,

reverse repo auctions, BB bills auctions, treasury bills auctions are primary operations in the money market

There is also active secondary trade in treasury bills (upto 1 year maturity).

 

Bonds (U.S.A)

• Government Bonds– Bonds sold by the U.S. Department of the

Treasury.• Municipal Bonds

– Bonds issued by state or local governments • Municipal securities are regulated by the Municipal

Securities Rulemaking Board (MSRB).

Bonds (Bangladesh)

• Treasury Bond– Bond market consists of primary issues of treasury

bonds of different maturities (2, 5, 10, 15 and 20 years),

– Secondary trade therein through primary dealers. – 20 banks performing as Primary Dealers participate

directly in the primary auctions.– Other bank and non bank investors can participate in

primary auctions and in secondary trading through their nominated Primary Dealers.

Understanding Stock Markets

Stock market (exchange) –

market in which common stocks are traded, such as the New York Stock Exchange.

Stock Exchanges of U.S.A

• The New York Stock Exchange – the Big Board is the most famous and one of the oldest stock markets in the world. More than 3,000 stocks are listed on NYSE.

• The Nasdaq Stock Market – the second largest stock market. Over 5,000 companies have their stocks listed on Nasdaq but many are smaller firms.

• Other U.S. Stock Markets– The American Stock Exchange/AMEX– Regional Stock Exchanges– Foreign Markets

Stock Exchanges of Bangladesh

• Dhaka stock exchange– • Inaugurated in 1954 • Previous name EPSE• Started online operation in 1998• Name of the president Siddiqur Rahman

• Chittagong stock exchange – • Inaugurated in 1995.• Started online operation in 1998• Name of the president Abdul Mojid Both of these controlled by BSEC

ECNs and The

Future of Stock

Markets @U.S.A• ECNs – electronic communication

networks– The 4th Market– Buyers and sellers meet in a virtual market

and exchange with one another– Take place on INET or Archipelago

• INET and Archipelago have been purchased by Nasdaq and NYSE

Financial Institutions of U.S.A

Commercial Banks

Savings Banks and Credit Unions

Non-depository Institutions

Commercial bank of U.S.A

Electronic Banking of U.S.A

An increasing amount of funds move through electronic funds transfer (EFTs).

Millions of businesses and consumers now pay bills and receive payments electronically.

Most employees directly deposit employee paychecks.

Social security and other federal payments are made each year electronically.

Automated Teller Machines (ATMs) continue to grow in popularity.

More than 1/3 of American households use some online banking.

Federal Deposit Insurance of U.S.A

• Enacted by the Banking Act of 1933

• Restore public confidence in the banking system

• Before deposit insurance, runs were common as people rushed to withdraw their money from the bank

• Deposit insurance shifts the risk of bank failures from individuals to the FDIC

Savings Banks and

Credit Unions of U.S.A

• Offer a variety of consumer services

• 85% of their loans are real estate loans

• Credit unions are cooperative financial institutions that are owned by depositors/members.

• Credit unions are created to serve consumers.

– Insured by National Credit Union Administration (NCUA) which functions the same as the FDIC

Non Depository Financial Institutions

of U.S.A

Insurance Companies

Pension Funds

Finance Companies

Financial Institutions of Bangladesh

Commercial Banks

Savings Banks and Credit Unions

Non-depository Institutions

Banking system of BD

• In the 1980's banking industry achieved significant expansion with the entrance of private bank.

Commercial bank of BD

Firstly- AB Bank 1982 Total 53 Commercial banks Like U.S.A some of our commercial banks practice other

banking activities beyond commercial banking activities.

Mobile banking of BD

First started by DBBL

A huge amount of money is transecting through this mobile banking

Now it is popular in rural arena of Bangladesh

Most of the banks added this service to its operation.

Bangladesh banks also emphasize on this.

Deposit Insurance

The deposit insurance scheme (DIS) introduced in August 1984

To act as a safety net for the depositors To help to increase market discipline To reduce moral hazard in the financial sector and provide

safety nets at the minimum cost to the public in the event of bank failure

Scheduled banks Bangladesh are the member of this scheme Bank Deposit Insurance Act 2000.

BB has already advised the banks for bringing DIS into the notice of the public through displaying the same in their display board. 

Savings Banks and Credit Unions

No specialized saving banks in Bangladesh

More or less maximum banks try to maintain saving banking in it’s operation

The Co-operative Credit Union League of Bangladesh Ltd. in short CCULB, founded in 1979 with participation of eleven (11) primary Credit Unions

The main role is to act as motivator or catalyst for Credit Unions

To organize people together for savings and teach them how to utilize their savings through mutual understanding and co-operation. 

Non Bank Financial Institutions of Bangladesh

Regulated under Financial Institution Act, 1993

Controlled by Bangladesh Bank.

33 NBFIs operating in Bangladesh

Maiden one was established in 1981.

Major sources of funds of FIs are Term Deposit

Credit Facility from Banks and other FIs, Call Money as well

as bond and securitization.

The Role of the Federal Reserve

• Created In 1913

• Central bank of the United States

• Regulate commercial banks

• Perform banking-related activities for the U.S. Department of Treasury

• Providing services for banks

• Setting monetary policy

Organization of the Federal Reserve

• 12 Federal reserve districts– Own federal reserve bank

• District banks are run by a nine-member board of directors.

• The board of governors is the governing body.• Politically independent• Federal Open Markets Committee (FOMC)

sets most policies concerning monetary policy and interest rates.

Check Clearing and the Fed

• Americans still write billions of paper checks.

• The process by which funds are transferred from the check writer to receiver

• The multiple-step process is managed and cleared by the FED.

• The Check Clearing for the 21st Century Act is making this process more electronic.

Monetary Policy

• Supply of money and credit• Measures of the money supply: M1 & M2• The FED requires banks to maintain

reserves.• Set the discount rate• Open Market Operations

Organization of the Bangladesh Bank

Established on December 16, 1971

Enactment of Bangladesh Bank Order 1972- President’s Order No. 127 of 1972 (Amended in 2003).

The general superintendence and direction of the affairs and business of BB have been entrusted to a 9 members' Board of Directors

Headed by the Governor who is the Chief Executive Officer of this institution as well.

BB has 45 departments and 10 branch offices.) -

Objective of Bangladesh Bank

• to formulate and implement monetary policy• to formulate and implement intervention policies in the

foreign exchange market• to give advice to the Government on the interaction of

monetary policy with fiscal and exchange rate policy• to hold and manage the official foreign reserves of

Bangladesh• to promote, regulate and ensure a secure and efficient

payment system, including the issue of bank notes;• to regulate and supervise banking companies and

financial institutions.

Monetary Policy

The main objectives of monetary policy of Bangladesh Bank are

• Price stability both internal & external• Sustainable growth & development• High employment• Economic and efficient use of resources• Stability of financial & payment systemBangladesh Bank declares the monetary policy by issuing MPS twice (January and

July) in a year. The tools and instruments for implementation of monetary policy in Bangladesh

are Bank Rate, Open Market Operations (OMO), Repurchase agreements (Repo) & Reverse Repo, Statutory Reserve Requirements (SLR & CRR).

Conclusion