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Introduction to

The Business of Banking II

Dosen:
Ir. Kayim Hanuri, MSc
M
Mata Kuliah
PRINSIP-PRINSIP PENGOPERASIAN BANK
PROGRAM PASCA SARJANA
UNIVERSITAS GUNADARMA
April, 2009
SessionI.MMIbii.Okt05.
Outline

Functions & Roles of the Financial System in


the Global Economy
An Overview of Banks and the Financial
Services Sectors
The Impact of Government Policy and
Regulation on Banking and the Financial
Services Industry
The Organization and Structure of Banking
and the Financial-Services Industry
An Overview of the Financial Statements of
Banks
Functions & Roles of the Financial System
in the Global Economy
Financial system: The collection of markets,
institutions, laws, regulations, and techniques
through which bonds, stocks, other securities are
traded, interest rates are determined, and financial
services are produced and delivered around the
world.
Its Primary Tasks: To move scarce loanable funds
from those who save to those who borrow to buy
goods and services and to make investments in new
equipment and facilities so that the global economy
can grow and increase the standard of living enjoyed
by its citizens.
The Global Economic System

Flow of expenditures for consumption and taxes


Flow of production of goods and services

Producing units Consuming unist


(mainly business & (mainly households)
government

Flow of productive services


Flow of incomes
Ficture 1: Circular flows of incomes, payments, and
productions in the global economic system
The Roles of Markets
in the Global Economics System
A market: An institution through which buyers and sellers meet to
exchange goods and services, and productive resources
Three types of markets in the global economic system as follows:
Product markets

Financial markets
Producing units Flow of funds (savings)
(mainly businesses Flow of financial services, Consuming units
Income, and financial (mainly households)
and governments) claims

Factor markets
Economic Functions of the Global Financial System
and Financial Markets
Saving Function:Provide a conduit for the public savings (bonds,
stocks and other financial claims)
Wealth Function:Accumulated savings built up over time
represent a stock of assets (refer to as wealth)
Liquidity Function:Provides a means of converting financial
instruments (claims) into cash with little risk of loss
Credit function: Provide credit to finance consumption and
investment spending
Payments Function: Provide a mechanism for making payments
for purchases of goods and services
Risk Protection Function: Offer businesses, consumers and
governments protection againts life, health, property and
income risks.
Policy Function: Be as the principal channel through which
government has carried out its policy of attempting to stabilize
the economy and avoid inflation.
An Overview of Banks and
Financial-Services Sector
What is a bank?
Based on the economic functions it serves:
Banks are involved in transferring funds from savers to
borrowers (financial intermediation) and in paying for
goods and services.
Based on the legal basis for its existence (USA and
still used by many nations):
A bank is any business offering deposits subject to
withdrawal on demand (such as by writing a check or
making an electronics transfer of funds) and making loans
of a commercial or business nature (such as granting
credit to private business seeking to expand the inventory
of goods on their shelves or to purchase new equipment)
Note: Under federal law, a bank is any institution that could
qualify for deposit insurance administrated by the Federal
Deposit Insurance Corporation (FDIC)
What is a bank?
Based on the services it offers:
Commercial banks: Sell deposits and make loans to business and individuals
Savings banks: Attract savings deposits and make loans to individuals and
families
Cooperative banks: Help farmers, ranchers and consumers acquire goods and
services
Motrgage loans: Provide mortgage loans on new homes and housing projects
Community banks: Are smaller, locally focused commercial and savings banks
Investment banks: Underwrite issues of new securities by their customers
Merchant banks: supply both debt and equity capital to business
International banks: Commercial banks present in more than one nation
Wholesale banks: A larger commercial banks serving corporations and
government
Retail banks: Serving primarily households and small businesses
Insured banks: Maintain deposits backed by FDIC
State banks: Function under charters issued by banking commissions in the
various states
National banks: Function under charters by federal charter through the
Comptroller of the Currency
Universal banks: Offer all financial services available in todays marketplace
Bank Competitors?
Insurance companies and pension plans: Providing
customers with long-term savings plans, risk protection,
and credit
Finance companies: Supplying customers with access to
cash (liquidity) and short-to-medium term loans for
everything
Mutual funds: Supplying profesional cash management
and investing services for long-term savers
Security brokers and dealers: Providing investment
and savings planning, executing security purchases and
sales, and providing credit crads to their customers
Credit unions and other Thrift Institutions: Offering
customers credit, payments, and savings deposit services
often fully comparable to what banks offer
Financial holding companies or conglomerates:
Highly diversified financial-service providers that control
multiple financial firms offering many different services
Service Areas in the Modern Banks
The credit function
The payment (transaction) function
The thrift (savings) function
The investment/financial planning function
The real estate and community development function
The cash management function
The merchant banking (temporary stock investment)
function
The invesment banking (security underwriting)
function
The security brokerage (trading) function
The insurance (risk management) function
Key Trends Affecting Banks and Other Financial-
Services Firms
Service proliferation: Due to the competion pressure, more
knowledgeable and demanding customers, and shifting
technology. Its impact: operating costs increase and greater risk
of failure.
Rising competition
Government Deregulation
An Increasingly Interest-Sensitive Mix of Funds
Technological Change
Consolidation and Geographic Expansion
Convergence: The movement of businesses across industry lines
so that a firm formerly offering only one product line ventures
into other product lines in order to broaden its sales share.
Globalization
Increased Risk of Poor Performance and Failure
Are Traditional Banks Dead or Dying?
Recently, some depository institutions have merged & failed in the
United States, Europe and Asia. Between 1980 and 2003 more than
1.500 insured depository institutions failed and more than 9.000
mergers occurred.
Bankings share of the market for financial services in declining.
Exessive regulation of banks and little or no regulation of many of their
competitors is a primary cause of these recent development. The
deregulation is a must if banking is to remain strong
Many banks are trying to fight back and preserve their market share
by:
Offering new services
Charging higher user fees for many formerly free services (ATMs)
Offering more services through subsidiary businesses (security
trading and underwriting)
Entering into joint ventures with independent companies (such
insurers)
Traditional banks may be dead or dying, but if banks are given
freedom to respond to the publics changing demands for new services,
they need not pass away merely from the blows of their financial-
services competitors.
Government Policy and Regulation
on Banking and the Financial
Services Industry
Why are most banks so heavily regulated?

The leading repositories of the publics savings, especially of


individual and families
Their power to create money in the form of spendable deposits
by making loans and investments
Provide individuals and businesses with loans that support
consumptions and investment spending
Have a long history of involvement with federal, state and local
government. Governments have relied on banks to assist in
conducting economic policy, in collecting taxes, and in
dispensing government payments
In the United States, banks are regulated through a dual
banking system:
State banking commissions (the state lavel): To give the states
closer control over industries operating within their borders
The Comptroller of the Currency, the Federal Reserve System, and
the Federal Deposit Insurance Corporation (the federal level): To
ensure that banks would be treated fairly by individual states and
local communities as their activities expanded across state lines.
Bankings Principal Regulatory Agencies
and Their Responsibilities
Federal Reserve System:
Supervise and regularly examines all state-chartered member banks and bank holding company
and acts as umbrella supervisor for financial holding companies
Imposes reserve requirements on deposits
Must approve all applications of member banks to merge, establish branches, or exercise trust
powers
Charters, supervises, and examines international banking corporations operating in the United
States
Comptroller of the Currency
Issues chaters for new national banks
Supervises and regularly examines all national banks
Must approve all national bank applications for new branches offices, trust powers, mergers, and
acquisitions
Federal Deposit Insurance Corporation
Insures deposits of banks conforming to its regulations
Must approve all applications of insured banks to establish branches, merge, or exercise trust
powers
Requires all insured banks to submit reports on their financial condition
Department of Justice: Review and approve bank mergers and holding company acquisitions
for their effects on compettion
Securities and Exchange Commission: Approve public offerings of debt and equity
securities by banks or bank holding companies
State Banking Boards or Commissions
Issue charters for new banks
Supervise and regularly examine all state-chartered banks
Reserve the right to approve all applications of banks operating within state borders to form
holding companies, acquire affiliates and subsidiaries, or establish branches offices
The Central Banking System

The primary job/the role: to carry out monetary policy,


making sure the supply and cost of money and credit from the
financial system contributes to the nations economic goals.
A variety tools to affect the legal reserves of the banking
system, the interest rates charged on loans, relative currency
values in the global foreign exchange markets:
Open market operations
The discount rate policy
Changing reserve requirements
Moral suasion
In the United States and Europe, the Fed and the European
Central Banks as central banks are relatively free and
independent of government control, because they dont depend
on the government for their funding.
In contrast, central banks in Japan, China and other parts of
Asia are generally under close control by their governments
The role of the Central Banks in the
economy
Control of the money supply
The changes in the money supply appear to be linked to changes
in economic activity (GDP)
In the absence of effective controls, money in the form of paper
notes or bank deposits could expand virtually without limit,
resulting in severe inflation, disrupt the payment mechanism, stop
business activity
Stabilizing the money and capital markets
To avoid volatile fluctuations in interest rates and securities prices in
order to make public confidence
Lender of last resort
Providing liquid funds to those financial instituions in need, especially
when alternative sources of funds have dried up
Maintaining and improving the payments mechanism
Clearing system
Providing an adquate supply of curreny and coin
Preserving confidence in the value of fundamental monetary unit
Peran Bank Indonesia sebagai bank sentral RI
Tugas menetapkan dan melaksanakan kebijakan moneter
BI mengelola cadangan devisa, untuk itu BI dapat
melaksanakan berbagai transaksi devisa dan juga dapat
menerima pinjaman luar negeri.
Tujuan pengelolaan devisa untuk menjaga nilai tukar
Transaksi devisa yang dapat dilakukan berupa menjual,
membeli atau menempatkan devisa, emas dan surat-surat
berharga secara tunai atau berjangka termasuk pemberian
pinjaman
Pinjaman luar negeri atas nama BI dan menjadi tanggung
jawab BI. Pinjaman semata-mata untuk pengelolaan
cadangan devisa untuk memperkuat posisi neraca
pembayaran (tidak termasuk APBN)
BI dapat menyelenggarakan survei berkala atau sewaktu-
waktu diperlukan yang bersifat makro atau mikro untuk
mendukung tugas-tugas BI. Survei: konsumen,
perkembangan harga aset, kegiatan usaha dll.
Dalam UU 24 tahun 1999 tentang Lalu Lintas Devisan dan
Nilai Tukar, BI mempunyai kewenangan:
Meminta keterangan dan data mengenai kegiatan lalu lintas devisa
yang dilakukan penduduk
Menetapkan ketentuan atas berbagai jenis transaksi devisa yang
dilakukan oleh bank
Mengajukan sistem nilai tukar untuk ditetapkan oleh pemerintah
Untuk melaksanakan kewenangan tersebut BI harus membuat Peraturan
BI.
Peran Bank Indonesia sebagai bank sentral RI
Tugas mengatur dan menjaga kelancaran sistem pembayaran
Melaksanakan dan memberikan persetujuan dan izin atas
penyelenggaraan jasa sistem pembayaran
Mewajibkan penyelenggara jasa sistem pembayaran untuk
menyampaikan laporan tentang kegiatannya
Menetapkan penggunaan alat pembayaran
Mengatur sistem kliring antar bank
Menetapkan macam, harga, ciri uang yang akan dikeluarkan,
bahan yang digunakan, dan tanggal mulai berlakunya sebagai alat
pembayaran yang sah
Mengeluarkan dan mengedarkan uang rupiah serta mencabut,
menarik dan memusnahkan uang dari peredaran
Tugas mengatur dan mengawasi bank
Tugas mangatur:
Menetapkan ketentuan-ketentuan perbankan yang memuat
prinsip kehati-hatian
Kewenangan perizinan: Memberikan dan mencabut izin usaha
bank, memberikan izin pembukaan, penutupan dan
pemindahan kantor bank, memberikan persetujuan atas
kepemilikan dan kepengurusan bank, memberikan izin kepada
bank untuk menjalankan kegiatan-2 usaha tertentu
Peran Bank Indonesia sebagai bank sentral RI
Tugas mengatur dan mengawasi bank (lanjutan)
Tugas mengawasi (langsung atau tidak langsung):
Mewajibkan Bank untuk menyampaikan laporan, keterangan
dan penjelasan sesuai dengan tata cara BI
Melakukan pemeriksaan terhadap bank, baik secara berkala
maupun setiap waktu apabila diperlukan
Dapat menugasi pihak lain untuk dan atas nama BI
melaksanakan pemeriksaan
BI dapat memerintahkan bank untuk menghentikan
sementara sebagian atau seluruh kegiatan transaksi tertentu
Mengatur dan mengembangkan sistem informasi antar bank
Tugas mengawasi bank akan dilakukan oleh lembaga
pengawasan sektor jasa keuangan yang independen, dan
dibentuk dengan UU, selambat-lambatnya 31.12.2002.
Sepanjang belum dibentuk, dilaksanakan oleh BI
Dewan Gubernur
BI dipimpin oleh Dewan Gubernur (seorang Gubernur, seorang
Deputi Gubernur Senior, dan sekurang-kurangnya 4 orang atau
sebanyak-banyaknya 7 orang Deputi Gubernur
Gubernur dan Deputi Gubernur Senior diusulkan dan diangkat
oleh Presiden dengan persetujuan DPR
Deputi Gubernur diusulkan Gubernur dan diangkat Presiden
dengan persetujuan DPR
Peran Bank Indonesia sebagai bank sentral RI
Akuntabilitas dan anggaran
BI wajib menyampaikan informasi kepada masyarakat secara
terbuka melalui media massa pada setiap awal tahun anggaran
yang memuat:
Evaluasi terhadap pelaksanaan kebijakan moneter pada tahun
sebelumnya
Rencana kebijakan moneter dan penetapan sasaran-sasaran
moneter untuk tahun yang akan datang dengan
mempertimbangkan sasaran laju inflasi serta perkembangan
kondisi ekonomi dan keuangan
Tahun anggaran adalah tahun kalender
Dewan Gubernur menetapkan anggaran tahunan BI yang harus
disampaikan kepada pemerntah dan DPR

Hubungan BI dengan pemerintah


BI sebagai kas pemerintah
Penerima pinjaman luar negeri untuk dan atas nama pemerintah
Pemerintah berkewajiban meminta pendapat BI dalam hal
pembahasan masalah ekonomi, perbankan dan keuangan yang
berkaitan dengan tugas BI
BI memberikan pendapat dan pertimbangan kepada pemerintah
mengenai RAPBN serta kebijakan lain
Pemerintah wajib berkonsultasi dengan BI apabila pemerintah
akan menerbitkan surat-surat hutang negara
BI dilarang memberikan kredit pada pemerintah
Peran Bank Indonesia sebagai bank sentral RI
Hubungan BI dengan dunia internasional
BI dapat melakukan kerjasama dengan bank central lainnya,
organisasi dan lembaga internasional
Materi kerjasama:
Intervensi bersama untuk kestabilan pasar valuta asing
Penyelesaian transaksi lintas negara
Hubungan koresponden
tukar menukar informasi
pelatihan/penelitian seperti masalah moneter dan pembayaran
The Organization and Structure of
Banking and the Financial-Services Industry
The Structure of the Commercial Banking
Industry
Factors affecting the changing of the structure, the
size, and the types of bank organizations:
Changing public mobility
Changing public demand
The rise of competition
Changing government rules and or international rules
The banking structure
USA: 53 % (4.168 banks) smallest banks (total assets up to
US$ 100 million), 42 % (3.314 banks) medium-size banks
(more than US$ 100 up to US$ 1 billion), 5 % (405 banks)
largest banks (more than US$ 1 billion). Banking is
becoming more concentrated in the largest banks.(As of
Dec.2002)
Indonesia:35 % (46 banks with equity less than Rp. 100
milyar), 62 % (82 banks with equity from Rp. 100 billion to
Rp. 10 trillion), 3 % (4 banks with equity more than Rp. 10
trillion up to Rp. 50 trillion)
SessionI.MMIbii.Okt05.
The Organization of the Commercial
Banking Industry
Unit Banking Organizations: Offer all of their services from one office,
although some services (such as taking deposits, cashing checks, or
paying bills) may be offered from limited-service facilities, such-as
drive-in windows, ATM, retail store point-of-sale terminals that are
linked to the banks computer system, and each banks internet
website. (about one third in the United States).
Branch Banking Organizations
The development of unit banking organization
Offer the full range of banking services from several locations,
including a head office and one or more full-service branch offices.
Branchings growth in the United States
Electronic Branching-Websites and Electronic Networks: Internet
banking services, ATM, point of sales (POS) terminals
Bank Holding Company Organizations: a bank holding company is a
corporation chartered for the purpose of holding the stock (equity
shares) of at least one bank
Recent trend: Move into much larger corporate entities with many
branch offices and holding company affiliated firms, reaching across
countries and continents (due to economies of scale and or economies
of scope)
An Overview of the Financial Statements of Banks

Assets Income statement


(accumulated uses of funds) Revenues:
Cash (primary reserves) Loan income
Invesment securities: the liquid Investment income
portion/secondary reserves) Noninterest income (fee
Investment securities: The income)
income generating income Expenses:
Loans Interest paid on deposits
Miscellaneous assets Interest pain on
nondeposits
Liabilities and equity Salaries and wages
(accumulated sources of funds) Provision for loan losses
Deposits: Demand, savings, Other expenses
time, money market Income before taxes and
Nondeposits borrowings securities transactions
Equity Capital: Stocks, Surplus, Taxes
Retained earnings Gains or losses from trading in
securities
Net income after taxes and
securities gain or loss
Thanks, see you in the next session