The development of the financial industry

Peter Sinclair, the former director of the Centre for Central Banking Studies at the Bank of England, talks about the financial industry.

Before you listen, check your understanding of banking vocabulary by completing each sentence with a word from the box.

• bonds
• capital
• deposit
• merger
• mortgage
• pension
• shares
• stocks
• takeover

1 A __________________ is a loan to buy property.

2 Money you put in the bank is called a __________________ .

3 Money paid to a retired person is called a __________________ .

4 Securities representing part-ownership of a company are called ______________ or __________________ .

5 The money invested in a business is its __________________ .

6 __________________ are interest-paying securities issued by companies that need to borrow money.

7 A ___________________________ is when a company gains control of another one by buying its stocks.

8 A ___________________________ is when two formerly separate companies join together.

Listen to Peter Sinclair talking about the organization of the financial industry 25 years ago, and answer the questions below.

1. Were most financial institutions national, or international?
2. Were most financial institutions specialized, or did they offer lots of services?

What kinds of financial institutions traditionally did the following types of business?

Complete the table.

• making loans
• arranging mergers
• providing pensions
• giving financial advice to companies
• receiving deposits
• issuing shares or bonds
• arranging mortgages
• arranging or fighting takeover bids
• offering life insurance

Retail banks	Building societies	Insurance companies	Investment banks

Script

Types of banks

Peter Sinclair: Well, twenty-five years ago the financial industry in most countries had two key characteristics. One was that pretty well all the banks and financial institutions in that country were owned in that country, and there were few international links - in many cases none. So they were national banks belonging to that country.

The other key feature was that financial institutions were specialized, so in Britain we had institutions that lent to people who wanted to borrow to buy houses - that means arranging mortgages - so we had specialized things called building societies doing that. We had retail banks where individuals and companies kept bank deposits and which made loans to cover short-term outlays and in some cases longer-term investment. Then we had another range of institutions like insurance companies to provide life insurance or pensions, and we had investment banks - sometimes called merchant banks. These weren't retail banks; they didn't deal with individuals, they dealt with big companies. They gave the companies financial advice, maybe arranging mergers, or fighting off a takeover bid, and helped to raise capital, for example by issuing shares or bonds.

Retail banks	Building societies	Insurance companies	Investment banks
· making loans · receiving deposits	· arranging mortgages	· providing pensions · offering life insurance	· arranging mergers · giving financial advice to companies · issuing shares or bonds · arranging or fighting takeover bids

  

The development of the financial industry: Going international

Peter Sinclair, the former director of the Centre for Central Banking Studies at the Bank of England, talks about the internationalization of the financial institutions. This recording dates back to 2007.

Listen to him and answer the questions below.

1. What happened to banks in Britain and many other countries?
2. In what way does Peter Sinclair compare the City of London to the Wimbledon tennis tournament?
3. Which two words does Peter Sinclair use to summarize the two big recent trends in banking?

Script

Going international

In the old days in Britain, the merchant or investment banks were pretty well all British and there were big boundaries between building societies and insurance companies and all these other types of companies.

Well, now if you look at the picture, many banks have become universal banks, perhaps 'banks' is the wrong word. Lots of institutions do all the things that I have just described - insurance, mortgages, advice, raising capital for companies, and retail banking besides.

And the other great change is that so many of the financial institutions - and it is not just true of Britain true of pretty much everywhere else - are now international. So, for example in Britain, two of the big four retail banks have changed ownership: One was taken over by Hong Kong and Shanghai Bank, that was the Midland Bank previously, and it's now changed its name to Hong Kong and Shanghai Bank  (HSBC) and it really isn't a British bank any more; and another, National Westminster, was taken over by the Royal Bank of Scotland.

But if you and another look at, say, countries like the Czech Republic or Hungary or Poland or New Zealand too, and plenty of other small countries around the world, all their financial institutions pretty well are now owned by foreigners, by German companies, or French companies or Austrian companies - whatever it might be - and the huge international financial institutions are typically, though not all of them, American; and you can now think of the City of London, the world's leading centre for foreign exchange dealings and a great deal of finance, as rather like Wimbledon.

In other words it's a great big international stage, happens to be in London, but most of the players are foreign; they are nearly all foreign companies that do, for the example, the investment banking and so many other things.

So internationalization and, if you like, homogenization of these hitherto specialized financial institutions. Those are the two big recent trends…