Month: January 2018

Banking has been a very traditional and conservative sector in any country. For ages, generations after generations, have been loyal to a particular bank that their families have been associated with. Whether it is the Royal Bank of Scotland and Lloyds TSB in the UK or American Express and Capital One in the US, people stay loyal to their banking partners.

The banking industry in the west took a huge risk in the last decade by using countries like India, China and the Philippines to outsource their banking and financial services. For banks, it was a step in the right direction to reduce the number of customers walking into their branches, the number of calls taken by banking executives at the branch and reduce the work load on their existing call centres.

They wanted to reduce costs of employing more people to cater to their ever increasing base of customers and provide better services to their customers besides gaining a competitive edge. For customers who have been used to traditional methods of banking such as visiting their nearest branch, were exposed to new and state of the art technologies. IT and IT enabled banking services were the new age success mantra for most banks in Europe and the Americas.

The focus of banks that outsourced parts of their business to other countries was to reduce costs and increase profits. Though their approach was cautious, there were loop holes in their strategy. AMEX was one of the first banks to set shop in India in the late 90s. Theirs was a captive centre. However over the years, more and more BPOs have shown their capability in handling banking and financial services with greater efficiency and effectiveness.

For customers of these banks, the challenge was conquering their fears of a stranger in a distant country having access to their account information and the mistrust in their ability to provide solutions. Besides, there were language and accent issues.

Some customers generally called their banks and surpassed the IVR to speak to an agent as they were not very comfortable dealing with a machine and others demanded speaking to their branch in their own country. Such issues lead to delays in service. This led to dissatisfaction amongst customers and forced many to choose banks that hadnt outsourced their work and catered to their needs from within the country.

Data security was also one the major concerns for banks. More than customers, banks have found themselves living on the edge with account details made accessible to BPOs in other countries. With data theft being a reality in countries like India, China and Japan, it was a proven fact that banking outsourcing wasnt foolproof.

For banks it may result in large law suits and a decrease in their customer base. Banks also had their reputation at stake. The third party vendors may follow practices that may be inconsistent with the policies and practices of the bank. Besides the political, social, legal and physical climate of the outsourcing country may impact banking services.

Commercial banking” was defined in the previous edition of this book as the activity of a banking institution whose “principal business is to accept deposits, make loans, collect commercial paper, and arrange the transfer of funds.” Under the banking law from the adoption of the Glass-Steagall Act in the 1930s until the beginning of the 1980s, there was a distinct demarcation between commercial banks and other financial institutions, such as investment banks, securities firms, and commercial financial services conglomerates.

AH this is changing. The types of institutions that can engage in traditional commercial banking functions have enlarged as a result of legislation giving additional powers to thrift institutions. The types of activities commercial banks engage in have expanded as a result of legislation at both the state and federal levels and as a result of judicial decisions dismantling parts of the wall erected by the Glass-Steagall Act to keep commercial banks insulated from the risks of dealing in securities. The “nonbank bank” explosion has started a restructuring of the banking market into holding companies capable of offering an array of financial services. In light of these developments, perhaps the most suitable definition is one offered by an English texi: “[B]anks come in all shapes and sizes, with different name tags applied indifferent countries, often quite loosely. Banks make most of their money from the difference between interest rates paid to depositors and charged to borrowers.” Commercial banks are “publicly quoted and profit oriented. They deal directly with the public, taking deposits, making loans and providing a range of financial services from foreign exchange to investment advice. Most countries have settled for between four and ten;” but in the United States there are nearly 15,000 because of “banking laws that have prevented banks operating in more than one state, and in different types of business,..

In addition to commercial banks, there are many specialized depository institutions that have been established to perform specialized roles. Thrift institutions such as savings and loan associations and credit unions are important examples. At their inception, savings and loan associations primarily engaged in home mortgage lending and offering passbook-type savings to consumers. With the enactment of the Depository Institutions Deregulation and Monetary Control Act of 1980, thrifts gained expanded authority to engage in commercial banking activities. Further incorporation into the general banking market has occurred as a result of the restructuring brought about by the financial failures and weakened condition of thrift institutions in the 1980s, which led to changes in the law to encourage the acquisition and merger of weak institutions with stronger financial institutions, including banks. To a great extent, thrift institutions are subject to a regulatory regime similar to that governing commercial banks, and engage in banking functions similar to those of commercial banks. Subsequent chapters discuss how thrifts fit into this regulatory scheme.

There are other specialized consumer-oriented financial companies. Credit unions may be organized under state and federal statutes with the power to maintain customer share accounts against which drafts may be drawn payable i n a manner similar to checks. There are also personal finance loan organizations authorized under the laws of the several states that loan small amounts of money to consumers, often at specially regulated rates that are higher than the usual interest rates allowed. These organizations normally are not deposit-taking institutions but operate with their own capital and credit. Banks often have their own small loan departments to make the same type of loans, and holding companies may have special consumer loan subsidiaries or affiliate companies.

Although trust activities have become a part of the activity of many commercial banks,1 this book does not deal with the laws that govern these trustee relationships and activities. The competition for funds has led some banks to offer managed investment accounts through their trust departments similar to those offered by mutual funds and other securities firms. Again, there are trust companies organized under state law that operate by accepting money for the purpose of investment where the beneficial interest in the funds remains in the original owner.

There are other types of banking functions and specialized banks: for example, reserve banks, which are really bankers’ banks; investment banks, whose chief business is underwriting and dealing in securities, and providing financial advice and aid in corporate acquisitions and mergers; agricultural banks; foreign trade banks; and other specialized banks that have charters to engage in particular types of business. Further, the peculiarities of federal laws regulating bank holding companies have encouraged the proliferation of various financial institutions that have been chartered as full-service banks but that limit their functions to activities such as consumer lending and credit card operations.

Because of the diversity of functions of commercial banks and the variety of depository institutions involved in them, this book does not attempt a comprehensive survey of all banking activity. Rather, it emphasizes the basic regulatory structure that governs traditional commercial banking institutions and the commercial activities associated with accepting deposits, collecting commercial paper, making payments and transferring funds, and engaging in certain credit transactions.

As this introduction indicates, the laws and regulations that govern commercial banking are numerous and complex. The various types of financial institutions engaging in commercial banking activities are matched by an equal activities. The Depository Institutions Deregulation and Monetary Control Act of 1980 also gave thrift institutions chartered by the Federal Home Loan Bank Board the authority to engage in trust activities under certain conditions. 12 USC 1464(n) (1982).

In addition, the law governing the transactions of commercial banks is complex. The Uniform Commercial Code has brought a desirable uniformity to the law in many areas, but there are many special purpose statutes, frequently intended to give special consumer protection, that must be taken into account in analyzing banking transactions. There is a growing body of federal law that must be considered along with the state commercial law of the UCC and common law. This book is intended to serve as a beginning guide for the bank officer engaged in these commercial banking transactions and the attorneys called upon to advise in banking matters. It is not a substitute for careful legal counsel, however, and such assistance should be obtained because this book can neither cover all the details applicable in particular matters, especially at the regulatory level, nor report on all the local variations, changes, and new developments. Moreover, the facts of a particular situation will vary in ways that may introduce new legal problems or otherwise affect the legal analysis. Obtaining the advice of competent legal counsel is essential.

Post global recession, the Brazilian banking model is now internationally recognized as a highly efficient system. Many attribute its recent success to the sophisticated mechanisms and regulatory systems that were created during the ‘lost-decade’ of hyper-inflation.

Nowadays, financial regulation is very conservative and was created to ensure the banks would be able to regularly stress test their processes to check and balance their activities in a variety of hypothetical unstable environments. Internal controls, limits for client exposure, loss provisions, company credit capital are all closely and strictly monitored. The following practices are also worth highlighting:

– The minimum Basel Ratio of the Brazilian banking system is set at 11 percent, which 3 percent higher than what is suggested in the Basel Accord. Most banks, in reality, operate much higher than this level (at over 17.5 percent) with low leverage ratios (over six times the level of their capital holdings);

– All banking limits and requirements are applied in consolidated terms which means that so called toxic assets or special investment vehicles are put under heavy scrutiny;

– All investment funds are weighted in line with their corresponding assets. This is undertaken to ensure that leverage levels are reasonable and over-exposure is kept to a minimum;

– Over the Counter (OTC) derivatives need to be registered with the Central Bank (or face legal action);

– The Brazilian Securities and Exchange Commission (Comisso de Valores Mobilirio) legally obliges all public companies to disclose all information with regards to the financial instruments that are being used. In addition, full sensibility’ analyses are undertaken on a regular basis;

– The central bank has control over all non-financial subsidiaries of banking institutions;

– Expected loss provisions are taken into consideration (not just actual losses);

– Liquidity and market risks are monitored intensively by the Central Bank on a daily basis;

– Bank reserves must cover all debt payments past;

– All lending above the value of $BRL 5,000 must be registered with the Central Bank;

– Issue ratings are regularly undertaken;

– Regulatory procedures are applied to all banks and are also regularly updated in line with financial innovations (approved by the Central Bank), international standards and conjuncture changes.

Many commentators attributed Brazils above average resistance to the effects of the global recession to these reasons. Indeed, at the onset of the global economic crisis, the securitisation market was less than 10 percent in comparison to the credit volume of the country which meant that the intersection between the two markets did not bring any significant damage.

At the close of first decade of the 2000s, Brazil was one of only four countries in the world with a wide spread on lending, with an average at over 30 percent. Indeed, the country was awarded first place for its high regulatory standards at the 2009 Financial Stability Forum’ in Basel that “helped it avoid the worst of the global economic crisis.” As pointed by Alexandre Tombini, Director of Regulation at the Central Bank: “We are used to dealing with challenging environments at our institutions and our regulations. Everything we have done since the mid-1990s has tended to take a more cautious approach.”

Below is a list of the main banking institutions of Brazil:

Central Bank of Brazil the highest monetary authority and the country’s governing body in all matters related to finance and economics. The institution is linked with the Ministry of Finance and decides the monthly SELIC interest rate.

Banco do Brasil the largest Brazilian and Latin American bank by asset values. With its headquarters in Braslia, it is also the oldest active bank in Brazil (founded in 1808).

Caixa Econmica Federal founded in 1861 (more commonly referred to as Caixa), nowadays the bank is well known for financing the civil and construction sectors; administering the Minha Casa, Minha Vida housing programme as well as being the large stakeholder in Brazils largest property and land portal: Zap.

The Brazilian Development Bank (Banco Nacional de Desenvolvimento Econmico e Social or BNDES) established in 1952, it is now the second largest development bank in the world and is a federal public company associated with the Ministry of Development, Industry and Foreign Trade.

Bradesco founded in 1943, it is one of the largest banks in operation in the country (it was formerly the largest until Banco Ita and Unibanco merged in 2009).

Ita Unibanco based in So Paulo, the bank was formed out a merger of Banco Ita and Unibanco in late 2008 and now operates as the largest financial conglomerate in the Southern Hemisphere and the 10th largest bank in the world.

Banco Santander Brasil founded in 1982, with its headquarters in So Paulo, major acquisitions were made in the late 1990s and 2000s including Banco Real, Banco Geral do Comrio, Banco Noroeste and Banespa.

Banco Real a Brazilian bank that was previously owned by ABN AMRO.

HSBC Brazil in 1997 Banco HSBC Bamerindus was set up to take over Banco Bamerindus do Brasil which was subsequently changed to HSBC Bank Brasil in 1999.

Safra with its headquarters in So Paulo, the bank is part of the larger Safra Group of financial institutions.

Banco Nossa Caixa the bank was incorporated into the Banco do Brasil in 2008, formerly serving as the financial agent of the State of So Paulo.

If you are looking for ways to earn income from your investments, you might consider looking into offshore banking. While some people think of offshore banking as being an illegal activity, it actually is completely legal. Offshore banking explained is opening up an account in a bank in a country that you do not reside in. You, of course, would have a bank account in the country you live but you would open up another account in a country that is not your home country.

The reason some people choose to open up these accounts in other countries is that they see the benefits of having them because money in these accounts earn interest. Many countries offer higher interest rates in hopes of drawing new international banking customers. They may depend on the income that they can receive from people opening new accounts in their country. For this reason, they offer competitive interest rates.

Countries who have high interest rates often have strict privacy laws as well. No one wants to invest their money if anyone can poke into their business and find out how much money they are holding in their international account. Most countries that have good offshore banking systems offer very strict privacy laws so that investors can put their money into a checking or savings account without anyone knowing about it. And it is always a good idea to have your money spread out in more than one bank just in case you need to get access to it and you have trouble at one bank.

Another benefit of opening an account for banking offshore is the fact that it gives you ready access to your money if you have to be out of the country that you live in. If you are a frequent traveler, it is a good idea to have an account in a country you visit often. If you have an account in a country you visit often, you will not have to worry about getting wire transfers or waiting for your money through any other means. It can be time consuming and difficult to get access to your money when you are out of the country. It is dangerous to carry a lot of money with you when you leave your home country because you can be robbed, or it can be lost. You definitely don’t want to depend on carrying enough cash with you when you are away because a difficult situation may arise when you need more money.

When investors choose a country to invest their money, they usually find a good offshore banking guide. A quality offshore guide will provide guidance and suggestions on the countries which it is best to invest your money. Not all foreign countries have equal banking systems. Therefore, it is prudent that investors do their research before opening a bank account in any foreign country. You might want to see if you have any friends or acquaintances who can offer offshore banking advice. They may be able to help you decide if offshore banking would be of benefit to you in your unique situation.