Critical Review

Carefully analyze the article, using your critical thinking skills. (4-5 paragraphs).

Relate the article to the microeconomic concept covered in the course. Your opinion on the issue is important.

Terminology

You should include relevant economic terms used in the concepts of the chapter and elaborate them.

Underline

2 important ideas of the relevant chapter.

Ch. 10; Banking Industry Structure and Competition. 5x5=25

-Shadow Banking System

-Four Pillars Convergence

-Financial Innovation

-Financial Engineering

-Near Banks Structure

i have attached the PPT of the course.

Financial Innovation and the Growth of the \"Shadow Banking System\" Present-day banking: Traditional banking, i.e. attract deposits and issue loans, is in decline Shadow banking system bank lending replaced by lending via securities markets Changes in the financial environment will stimulate financial innovation in search for profit Responses to changes in: demand conditions, supply conditions, avoidance of regulations New products and services by financial engineering Competition Across All Four Pillars Four-Pillar Approach in Canada: regulation by institution (until recently) Institutions were defined by their core financial service Banking, brokerage, trusts, and insurance - Recent legislative changes allows cross-ownership via subsidiaries between financial institutions - As a result, Canada's traditional four pillars have now converged into a single financial services marketplace Take advantage of economies of scope Increased size of financial institutions, but also increased combination of product and services they provide Financial Innovation and the Decline of Traditional Banking - Decline in Cost Advantages in Acquiring Funds Rising inflation led to rise in interest rates and disintermediation Low-cost source of funds, checkable deposits, declined in importance - Decline in Income Advantages on Uses of Funds Information technology has decreased need for banks to finance short-term credit needs or to issue loans Information technology has lowered transaction costs for other financial institutions, increasing competition Structure of the Canadian Chartered Banking Industry - The Big Six, together with the Laurentian Bank of Canada, the Canadian Western Bank, and another 28 domestic banks are Canada's Schedule | banks - Until 1981, foreign banks were not allowed to operate in Canada - Schedule II banks are some domestic banks controlled by eligible foreign institutions - A Schedule III bank is a foreign bank branches of foreign institutions The Near Banks: Regulation and Structure (1 of3) - Near banks: trust and loan companies & credit unions and caisses populaires - Trust Companies and Loan Companies Operate under a charter issued by either the federal government or one of the provinces Federally incorporated trust and loan companies are regulated and supervised by the OSFI and must also register in all provinces in which they operate and conform to their regulations The fiduciary component of trust companies is only subject to provincial legislation, even if the company is federally incorporated CDIC and QDIB (for Qubec trust and loan companies) The Near Banks: Regulation and Structure (2 of 3) - Cooperative banks: Credit Unions and Caisses Populaires Established under provincial legislation Are non-prot seeking institutions Accept deposits and make loans only to members Members have voting rights, elect board of directors, which determine lending and investment policies Have their own set of institutions, including central banking and deposit insurance Main source of funds is deposits followed by members equy Asset portfolio made up largely of mortgages The Near Banks: Regulation and Structure (3 of 3) - Government Savings Institutions Alberta Treasury Branches Established in 1938 Today, there are 172 branches in 243 communities across Alberta Operate in three target markets: individual financial services, agricultural operations, and independent business