In this article, Perry Mehrling, a professor of International Political Economy at Pardee School of Global Studies, Boston University, discusses three theories of banking which are guiding bank regulation and research. These are credit creation theory, fractional reserve theory and debt intermediation theory.
What is the organizational structure of commercial bank?
The structure of a commercial bank may be very similar to a regular organization, depending on the size of the bank. There are usually a CEO, executive directors, operations managers, internal auditors, and standard bank staff. Not all of these individuals or positions will be at a single banking location.
What are the major types of commercial banking?
There are primarily 3 types of commercial banks – public sector, private sector, and foreign banks. All of them contribute to a crucial part of a nation’s economy.
What is the main business model of a commercial bank?
The business model of banks is based upon generating revenues via interests, financial advice, and other transactional fees. These banks are just like the companies which can be normally listed in the way in the place of the stock market. These banks are owned by the stakeholders.
What is bank theory?
The financial intermediation theory of banking. In the words of recent authors, “Banks create liquidity by borrowing short and lending long” (Dewatripont, Rochet, & Tirole, 2010), meaning that banks borrow from depositors with short maturities and lend to borrowers at longer maturities.
What is economic theory?
Economic theory is based on the assumption that investors and consumers are rational and very “efficient machines,” namely, that they make the best choices for themselves. Laboratory tests reveal that investors’ behavior is much more complicated relative to the behavior assumed in most economic theories.
What are the departments in a commercial bank?
The bank officers appoint department managers, who head up each banking division. These divisions vary from bank to bank, but most include some form of the following: loan, credit, auditing, trust, consumer banking and business. Within each division, there are a president and various vice president.
Which is an example of a classical organizational theory?
Classical organization theory includes the scientific management approach, Weber’s bureaucratic approach, and administrative theory. The scientific management approach is based on the concept of planning of work to achieve efficiency, standardization, specialization and simplification.
What do you need to know about organizational theory?
Everything you need to know about the organizational theories. Organizational theory is the sociological study of formal social organizations, such as businesses and bureaucracies, and their interrelationship with the environment in which they operate. It complements the studies of organizational behavior and human resource studies.
How is the banking industry evolving over time?
While it is difficult to predict how the financial services sector in general, and the banking industry in particular, will evolve over time, financial regulators and policymakers are keenly interested in the course of financial modernization.
Why are banks so important to the economy?
In his famous article, Corrigan (1982) argued that banks are special because: (1) they provide transaction services and administer the nation’s payments system; (2) they provide backup liquidity to the economy; and (3) they are transmitters of monetary policy. Due to their special function in the economy,…
