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  • The international banking system is an enigma.

  • There are more than 30,000 different banks worldwide

  • and they hold unbelievable amounts of assets.

  • The top 10 banks alone account for roughly 25 trillion U.S. dollars.

  • Today, Banking can seem very complex,

  • but originally, the idea was to make life simpler.

  • 11th Century Italy was the center of European Trading.

  • Merchants from all over the continent met to trade their goods.

  • But there was one problem,

  • too many currencies in circulation.

  • In Pisa, merchants had to deal with seven different types of coins

  • and had to exchange their money constantly.

  • This exchange business, which commonly took place outdoors on benches,

  • is where we get the word bank from.

  • From the wordbanco,” Italian for bench.

  • The dangers of traveling, counterfeit money, and the difficulty of getting a loan

  • got people thinking.

  • It was time for a new business model.

  • Pawn brokers started to give credit to businessmen,

  • while genoese merchants developed cashless payments.

  • Networks of banks spread all over Europe handing out credit,

  • even to the church or european kings.

  • What about today?

  • In a nutshell, banks are in the risk management business.

  • This is a simplified version of the way it works.

  • People keep their money in banks and receive a small amount of interest.

  • The bank takes this money and lends it out at much higher interest rates.

  • It's a calculated risk, because some of the lenders will default on their credit.

  • This process is essential for our economic system

  • because it provides resources for people to buy things like houses

  • or for industry to expand their business and grow.

  • So banks take funds that are unused by savers

  • and turn them into funds society can use to do stuff.

  • Other sources of income for banks include

  • accepting saving deposits, the credit card business, buying and selling currencies,

  • custodian business, and cash management services.

  • The main problem with banks nowadays is

  • that a lot of them have abandoned their traditional role as

  • providers of long term financial products in favour of short term gains

  • that carry much higher risks.

  • During the financial boom, most major banks adopted financial

  • constructs that were barely comprehensible and

  • did their own trading in a bid to make fast money

  • and earn their executives and traders millions in bonuses.

  • This was nothing short of gambling

  • and damaged whole economies and societies.

  • Like back in 2008,

  • when banks like Lehman Brothers gave credit to basically anyone who

  • wanted to buy a house,

  • and thereby put the bank in an extremely dangerous risk position.

  • This led to the collapse of the housing market in the US and parts of Europe,

  • causing stock prices to plummet,

  • which eventually led to a global banking crisis

  • and one of the largest financial crises in history.

  • Hundreds of billions of dollars just evaporated.

  • Millions of people lost their jobs and lots of money.

  • Most of the world's major banks had to pay billions in fines

  • and bankers became some of the least trusted professionals.

  • The US government and the European Union had to put together huge

  • bailout packages to purchase bad assets and stop the banks from going bankrupt.

  • New regulations were put into force to govern the banking business :

  • Compulsory bank emergency funds were enforced

  • to absorb shocks in the event of another financial crisis.

  • But, other pieces of tough new legislation were successfully blocked by the banking lobby.

  • Today, other models of providing financing are gaining ground fast,

  • like new investment banks, that charge a yearly fee and do not get commissions on sales,

  • thus providing the motivation to act in the best interests of their clients.

  • Or credit unions : Cooperative initiatives that were established in the 19th century

  • to circumvent credit sharks.

  • In a nutshell, they provide the same financial services as banks,

  • but focus on shared value, rather than profit maximization.

  • The self proclaimed goal is to help members create opportunities like starting small businesses,

  • expanding farms, or building family homes whilist investing back in to communities.

  • They are controlled by their members, who also elect the board of directors democratically.

  • Worldwide, credit union systems vary significantly,

  • ranging from a handful of members

  • to organizations worth several billion US dollars

  • and hundreds of thousands of members.

  • The focus on benefits for their members

  • impacts the risk credit unions are willing to take.

  • Which explains why Credit Unions, although also hurting,

  • survived the last financial crisis way better than traditional banks.

  • Not to forget the explosion of crowdfunding in recent years.

  • Aside from making awesome video games possible,

  • platforms arose that enabled people to get loans from large groups of small investors,

  • circumventing the bank as a middle man.

  • But it also works for industry.

  • Lots of new technology companies started out on Kickstarter or Indiegogo.

  • The funding individual gets the satisfaction of being part of a bigger thing,

  • and can invest in ideas they believe in.

  • Whilst spreading the risk so widely

  • that if the project fails, the damage is limited.

  • And last but not least: Micro Credits.

  • Lots of very small loans,

  • mostly handed out in developing countries that help people escape poverty.

  • People who were previously unable to get access to the money they needed to start a business

  • because they weren't deemed worth the time.

  • Nowadays, the granting of Micro Credits has evolved into a multibillion dollar business.

  • So, banking might not be up your street,

  • But the bank's role of providing funds to people and businesses

  • is crucial for our society, and has to be done.

  • Who will do it and how it will be done in the future

  • is up for us to decide, though.

  • Subtitles by the Amara.org community

The international banking system is an enigma.

Subtitles and vocabulary

B1 INT UK credit banking business financial bank money

Banking Explained – Money and Credit

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    mommy   posted on 2015/08/25
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