| The Federal Open Market Committee (FOMC) and the Federal Advisory Council assist the Federal Reserve System’s Board of Governors. The 12 regional Federal Reserve district banks and their 25 branches implement broad policies affecting the money supply. EXHIBIT 1 |
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On the left side of the organizational chart in Exhibit 1 is the very important Federal Open Market Committee (FOMC). The FOMC directs the buying and selling of U.S. government securities, which are major instruments for controlling the money supply. The FOMC consists of the seven members of the Board of Governors, the president of the New York Federal Reserve Bank, and the presidents of four other Federal Reserve district banks. The FOMC meets to discuss trends in inflation, unemployment, growth rates, and other macro data. FOMC members express their opinions on implementing various monetary policies and then issue policy statements known as FOMC directives. A directive, for example, might set the operation of the Fed to stimulate or restrain Ml in order to influence employment.
As shown on the right side of the chart, the Federal Advisory Council consists of 12 prominent commercial bankers. Each of the 12 Federal Reserve district banks selects one member each year. The council meets periodically to advise the Board of Governors.
Finally, at the bottom of the organizational chart is the remainder of the Federal Reserve System, consisting of commercial banks, mutual saving banks, saving and loan associations and credit unions.
2)
The commercial bank’s most important activity is the extension of credit. Banks will lend money in two ways:
– by a personal loan;
– by an overdraft loan arrangement.
The personal loan is charged at a fixed rate of interest repayable over a fixed period of time. The overdraft is used mostly by businessmen. The advantage with overdrafts is that interest is repayable only on the amount owed at a particular time. Interest is calculated on a daily basis. The borrower will have to pay a lot of interest when the debt is large, but if he is able to make a good deposit and reduce the size of the overdraft then the interest charged will be lowered accordingly. Overdrafts may be recalled by the bank at a very short notice.
B. Translate into English.
Коммерческие банки могут быть универсальными или специализированными. Инвестиционные банки специализируются на кредитовании фирм; торговые банки финансируют операции на рынке капитала и внешнеторговую деятельность; сберегательные банки собирают и пускают в оборот сбережения многочисленных, главным образом, мелких вкладчиков.
Частные лица и компании открывают банковские счета, по которым проводят различные операции, например, при необходимости снимают наличные деньги либо переводят средства на счета других людей посредством выписывания чеков, прямого дебетования или электронного трансфера. При утрате доверия клиентов к банку все его вкладчики одновременно пытаются изъять из него свои деньги, что приводит к «набегу» на банк. Во избежание подобных ситуаций в большинстве стран существуют государственные органы, которые наблюдают за деятельностью банков.
LISTENING
Central Banking
Gabriel Mangano is an economics research student, specializing in monetary policy. You will hear him outlining the functions of a central bank, and discussing whether it should be independent from the government, and run by bankers, or under the control of the government.
Ex. 1. Make sure that you understand the following words and word combinations.
– to implement monetary policy;
– interest rate ceilings and floors;
– a fluctuation of interest rate;
– an upswing/a downswing of the exchange rate;
– a bank run = a run on the bank.
Ex. 2. Which of these banks are independent from the government?
– the Bank of England;
– the Federal Reserve System;
– the Bundesbank;
– the Japanese central bank;
– the Chinese central bank;
– the National Bank of Belarus.
Ex. 3. A. Listen to Part One of the interview about the functions of a central bank, and fill in the gaps.
The first one is actually to implement monetary policy. There are roughly three ways to do it. First (1 a) ……, which means limiting, upwards or downwards, the fluctuations of the interest rate.
The second way to implement monetary policy is simply (1 b) …… coins, banknotes.
The third one, which is a bit more modern, is those (1 c) ……, which are simply buying and selling government bonds to and from commercial banks.
So that was the first main task of a central bank. The second one is
(2) …… I would say. [...]
The third main task, yes,(3) ……, I would say – make sure that the commercial banks have enough liquidities, for instance, to avoid any bank run. [...]
The fourth main task of the central bank would be to (4) ……, in case, actually, one of these commercial banks goes bankrupt and the investors, the people putting money in the bank, have to get back their money.
B. Read the six sentences below, which also summarize central banking functions, but slightly differently, and match them up with the six expressions you have written in A.
a) controlling the amount of banknotes in circulation;
b) establishing maximum and minimum lending rates, thereby controlling the credit system;
c) ensuring that banks have a sufficient liquidity ratio to allow customers to withdraw their deposits when they want;
d) intervening on foreign exchange markets, buying or selling large amounts of the national currency, to prevent major fluctuations;
e) lending money to a commercial bank in danger of going bankrupt;
f) selling government bonds to commercial banks or buying them back, in order to alter the amount of credit the banks can offer (and thereby alter the money supply).
C. Listen to Part Two of the interview and answer the following question:
What is Gabriel Manganos opinion concerning central bank independence, and why?
D. Look through the following statements. Listen to the extract again, and decide whether the statements are TRUE or FALSE. Correct them if they are false.
1. Gabriel Mangano says that governments tend to increase the money supply in the months before an election, which helps reduce unemployment.
2. Mangano states that the central bank should be the branch of the government that implements monetary policy.
3. Mangano considers that the central bank should be the branch of the government that implements budgetary policy.
4. Mangano suggests that governments always have a budget deficit.
5. Mangano points out that the US Federal Reserve is not concerned with price stability.
6. Mangano is of the opinion that there should be a limit to the central bank’s independence.
E. Do you agree that central banks should be controlled by (unelected) bankers rather than by elected governments – which will often do everything possible to get re-elected?
SPEAKING
A. Useful language: Asking and dealing with questions.
| Asking questions politely Could you tell me/explain to us … I wonder if…/I wonder if you could tell me … Do you happen to know … I’d like to know what/when/where/why/how/if Dealing with questions I’m often asked that question. What I (usually/often) say is … Do you mind if we deal with that later? Dealing with difficult questions I’m not sure if I entirely understand your question. Do you mean …? I’m afraid I don’t have that information at hand, but … I’m sorry, but that’s not really my field/department/sector. |
Ex. 1. Act as a customer who visits a bank and asks a series of questions about the bank services. Use different forms of polite requesting information.
Model. The account has been credited with the dividend.
Can you tell me whether my account has been credited with the dividend?
1) the kinds of current account available;
2) the normal bank charges on overdrawn account;
3) the frequency of sending statements (How often…);
4) interest rate on deposit account;
5) current level of interest they charge on loans;
6) getting an appointment to discuss the cash flow problem with a loan officer;
7) checking whether the cheque paid in last Monday has been cleared.
Ex. 2. Read the dialogue and identify the ways of asking and dealing with the questions politely. Do the tasks that follow.
| Student: | I’d like to know who really owns the bank? |
| Banker: | The stockholders own it. In the beginning, they put up the necessary capital and were granted a charter from the government. |
| Student: | Am I right to say that all the members of the board of directors are stockholders? |
| Banker: | Oh, yes. They are chosen by the other stockholders to operate the bank. |
| Student: | And I wonder if board hires the president and the vice-president to manage it. |
| Banker: | That’s right. Along with the cashier, the tellers and the clerical workers. |
| Student: | I guess most of your work has to do with checking and savings accounts and making loans. |
| Banker: | Yes. But we invest money too. Planning the bank’s investment is also very important. |
| Student: | I wonder if you divide all the profits among the stockholders. |
| Banker: | I’m often asked that question. The stockholders receive regular dividends. But some of our earnings are held in reserve accounts. |
| Student: | I suppose that would be necessary. |
| Banker: | Here is a copy of our last published statement. You see, the reserves are shown here as surplus and undivided profits. |
The dialogue deals with the structure and functions of an American bank. You should keep in mind that there are some differences in American and British terminology. Give the American terms corresponding to the British ones given below.
| British terms(BrE) | American terms(AmE) |
| to run a bank | |
| cheque | |
| current account | |
| deposit account | |
| managing director | |
| shareholder | |
| cashier | |
| banknote |
Role-play the dialogue.
B. Discuss the following issues:
1. What changes have there been in personal banking recently? What further changes do you foresee in future?
2. What is ATM?
3. What is the difference between a credit card and a debit card?
4. What are the advantages of using a debit card instead of cash?
5. What is remote (home) banking? What are its weak and strong points?
6. What are the basic financial institutions in your country?
7. How can you get a loan from a bank in your country?
8. What interest on deposit accounts do Belarusian banks offer?
C. Revise the texts from the unit and be ready to speak on the following issues:
– types of banks and their functions;
– types of the accounts the commercial banks provide;
– the principal functions of the Fed;
– banking system in Belarus.
VOCABULARY
account n – счет
current (BrE)/checking (AmE)/ ~ – текущий/расчётный счёт
deposit (BrE)/time (AmE) ~ – депозитный/срочный вклад
overdrawn ~ счет с отрицательным балансом
saving ~ – сберегательный счeт
maintain an ~ – иметь счет в банке
banknote n – банкнота (BrE)
bill n – счeт; банкнота (AmE)
treasury ~ – казначейский вексель
blue chip n – голубая фишка (акции крупных, пользующихся уважением компаний)
bond n – облигация, ценная бумага
borrowing n – заем, кредит
cheque (BrE)/ check (US) n – счeт, чек
to clear a ~/ syn. to stop a ~ – осуществить клиринг чека/оплатить счeт
collateral n syn. – security – обеспечение кредита, залог
credit n – кредит, доверие
to be in~ syn. to be in (the) black – быть кредитоспособным, иметь деньги на счету; ant. to be in the red – быть убыточным
extension of ~ – предоставление кредита
currency n – валюта, деньги
to maintain ~ – воспроизводить деньги
to circulate ~ – вводить деньги в обращение
deposit v – депонировать, положить на хранение
deposi t n – вклад, депозит, взнос
demand (BrE)/checking (AmE)~ – вклад до востребования
savings (Br)/time (Am) ~ – срочный, накопительный вклад
depositor n – вкладчик
deregulation n – децентрализация
draw (drew, drawn) v – выписывать, выставлять (чек, тратту)
withdraw – брать назад; отзывать; отменять
~ money – снимать деньги со счeта
exchange n – обмен
Inter-Bank Currency ~ – межбанковская валютная биржа
medium of ~ – средство международных расчетов, средство обмена
interest n – проценты; выгода
charge ~ – взыскивать процент; начислять проценты
lend v – syn. loan out –давать взаем, предоставлять кредит
loan n – syn. lending – заем, ссуда
make a ~ – получить заем
make ~ – предоставлять ссуду
maturity n – срок погашения платежа
merger n – слияние
monetary adj – денежный
~ base – денежная база (часть денежной массы, которая признается в качестве резервов банковской системы)
~ policy – денежно-кредитная политика
mortgage n – ссуда на покупку жилья, ипотека
overdraft n – овердрафт; сумма, выдаваемая банком клиенту сверх остатка на его текущем счете
portfolio n – перечень ценных бумаг
~ management – контроль и регулирование портфеля активов
quote v – назначать цену, котировать
rate n – ставка, уровень
base/discount/prime ~ – учетная процентная ставка центробанка
exchange ~ – валютный курс
interest ~ – процентная ставка
required reserve – обязательный резерв
~ (ratio) – норма резервного покрытия, резервная норма
reserve requirements – резервные требования
securities n – ценные бумаги
underwrite ~ – гарантировать выплату по ценным бумагам
spread n syn. margin – спрэд (разница между предполагаемыми ценами покупки и продажи)
takeover n – поглощение
withdraw v – отзывать обратно, снимать со счета
yield n – доход по ценным бумагам с фиксированным процентом
GLOSSARY
· Commercial bank is a retail bank, such as Barclays, Lloyds TSB, HSBC or Nat West which provides services to companies and individuals in the form of current, deposit and loan accounts plus a variety of other financial services including mortgages, insurance and financial planning.
· Discount rate is the interest rate a central bank charges on loans of reserves to banks
· Exchange rate is the number of units of one nation’s currency that equals one unit of another nation’s currency.
· Federal Reserve System is the twelve central banks in the USA that service banks and other financial institutions within each of the Federal Reserve districts, popularly called the Fed.
· Interest rate is the percentage rate at which interest is charged on a loan or paid on savings etc.
· Monetary base is the stock of an economy’s most liquid financial assets.
· Money supply is the total amount of money in an economy at a given time.
· Open market operations are the buying and selling of government securities by a central bank.
· Required reserve ratio is the percentage of deposits that a central bank requires a bank to hold in vault cash or on deposit with it.
· Required reserves are the minimum balance that a central bank requires a bank to hold in vault cash or on deposit with it.