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The Role of Non- Commercial Banks in the Financial System

Thrift institutions are money related delegates that give a similar fundamental keeping money benefits as customary banks (financial records, investment accounts, credits), yet which were initially made to fill explicit keeping money specialties. The three most common thrift establishments are credit associations, investment funds and advance affiliations, and common investment funds banks.
Non-commercial financial institutions includes: savings and loans, pawnshops, credit unions, private banks, mutual credit societies, insurance companies, pension funds, finance companies and other types of activity. These institutions originally were created was with the purpose to accept deposits and use much of the funds for mortgage loans, home equity loans and mortgage backed securities. (Madura)
The special role of thrift organizations in the complex financial structure of the United States regularly is misjudged. In contrast to business banks, these organizations depend for the most part on the reserve funds of people for the assets they loan and contribute. While business banks pay “interest” on funds, thrift establishments regularly pay “profits” on reserve funds stores or offer records.

What’s the origin of thrift institutions?

At the beginning profit was not a priority for the Thrift Institutions, they wanted that people to have a secure location for their money on difficult times. These institutions were created by thoughtful citizens who wanted to help the working class people. (Small Business).
Thrift institutions have been for a long period of time, starting out as “building societies” in the United Kingdom in the late 18th century and then making their way to the U.S. ( Bankrate)
At one point, during the postwar era in the 50s and 60s, most mortgages were financed by Thrift institutions, but this progress and rise were shadowed by the fraud and failures by the savings and loan industry on the 80s. Thrifts still play a key role in helping thousands of families to buy homes. As we can see from the 1830, these institutions were very important to achieve the famous “American Dream” of home ownership. ( MASON)
Rol and functions of Thrift Institutions

How to become a member
The Federal Home Loan Bank (FHL) is the institution in charged to provide its members ( thrift institutions, commercial banks, credit unions, insurance companies) source of funds for mortgages and assets liability managements, liquidity for a members short term needs and additional funds for housing finance and community developments. ( source)
To become a member, thrift institutions must meet statutory requirements:
Be organized under the laws of any state of the United States.
Be subject to inspection and regulation under the banking laws, or similar state or federal laws.
Have at least 10 % of its total assets in residential mortgage loans, if it is a federally insured depository institution.
Have a financial condition that allows FHL bank advance (loans) to made in a safely way.
Have character of management and a financing policy consistent with economical house financing.
Is important highlight that each member of the FHL bank must keep a minimum investment in the stock of the FHL Bank, and then the sum of the stock investments by all members must be enough for the FHL to meet its own minimum capital of requirements. ( source)
One of the benefits of the thrift institutions is that they can borrow money from the FHL at a very low rate of interest.
Thrift vs. banks:
Nowadays, thrift institutions can be very competitive respecting to commercial banks because they both offer almost the same financial products such as: Transactions, time deposits to consumers, real estate, savings, but they differ in their lending capacity. Thrift institutions have a limit of lending for commercial loans of less than 30 % of assets. This means that the half may be exclusively used to make loans in small business. They must meet a serial of requirements and the 65 percent of its portfolio must be in mortgages and consumer related assets. Commercial and non-commercial banks also differ in terms of authority to subscribe with non-depository institutions, which separate commercial banking from investment banking.

Federally Chartered and Insured Thrift Institutions:
Essentially the majority of the nation’s 515 common investment funds banks safeguard their investment accounts. Most are secured by the Federal Deposit Insurance Corporation (F.D.I.C.), a similar organization that safeguards records of business banks up to $10,000. Massachusetts requires its 185 mutual to safeguard through a state finance, yet eight of the biggest of them likewise utilize F.D.I.C., generally for aggressive and limited time purposes.
The Federal Savings and Loan Insurance also protect bank accounts up to $10,000 for each saver in all governmentally contracted investment funds and advance affiliations and in state-sanctioned reserve funds and credit affiliations which apply and meet all requirements for such insurance. About 65 percent everything being equal and advance affiliations—4,098 out of an aggregate of 6,276—have their investment accounts guaranteed by F.S.L.I.C. The benefits of he governmentally protected establishments add up to $67.4 billion, or 94 percent of the aggregate resources all things considered relationship in the country. What’s more, Massachusetts guarantees the records of the 174 state-sanctioned investment funds furthermore, advance organizations in that state, speaking to over $1.2 billion in resources. On the off chance that a governmentally protected investment funds also, advance affiliation ends up bankrupt, the F.S.L.I.C. settles each safeguarded record by installment of money or by making accessible to the holder of the record a moved record in another safeguarded affiliation. (Dickinson)
Funds and advance relationship with government sanctions are liable to the supervision of the Federal Home Loan Bank Board. They are required to be individuals from the Federal Home Loan Bank System, which fills in as a promptly accessible store of credit. Consolidated resources of governmentally sanctioned affiliations currently add up to about $40 billion, or on the other hand 54 percent of the aggregate resources all things considered and advance relationship in the United States.
Federal Taxation of Thrift Institutions:
The opposition for savers’ dollars between business banks and thrift foundations has been reflected in a discussion in Washington over government tax collection of the mutual. Preceding 1952, common reserve funds banks and credit affiliations delighted in virtual exclusion from government charges on business pay. In 1951, the Treasury Department suggested that their held income be exhausted on indistinguishable premise from those of business banks. The business banks are allowed to build up tax-exempt stores for awful obligations equivalent to multiple times their normal misfortune encounter over a 20-year time span. The Treasury evaluated that its arrangement would acquire extra income of $150 million yearly.
Under the Revenue Act of 1952, be that as it may, as at long last gone by Congress, thrift foundations were permitted to hold saves tax exempt until the aggregate of their stores, surplus and unified benefits rose to 12 percent of stores. As the Treasury Department called attention to in a report of July 1961 to the House Ways and Means Committee “This uncommon terrible obligation hold arrangement has kept these establishments for all intents and purposes assess excluded on the grounds that they may amass $12 of income tax exempt for each $100 of new stores.” In monetary 1961, investment funds and advance affiliations and common reserve funds banks paid add up to government pay charges of under $10 million, despite the fact that they had resources in abundance of $112 billion and net working salary, after the installment of profits, of about $700 million. Business banks griped that they were paying nearly 40c as duties on each dollar of salary while the common foundations were paying just about 2c.
In his first expense message to Congress, April 20, 1961, President Kennedy called for audit of tax collection arrangements influencing thrift foundations “with the point of guaranteeing nondiscriminatory treatment.” The Treasury Department embraced another investigation of the inquiry and in July 1961 presented its report and suggestions to the House Ways and Means Committee. The report inferred that “extra expense income can be acquired as of now without huge interruption to the common thrift organizations or hindrance to national lodging programs.”
This finding was debated by the Federal Home Loan Bank Board, which said that the effect upon investment funds and advance affiliations of any significant increment in expenses “must fall upon the yearly hold allotments of these relationship, upon the profit rates they pay to savers, or upon a blend of both; whatever the wellspring of pay for the installment of duty, there will unavoidably be an unfavorable impact upon the volume of net individual reserve funds streaming into these organizations.” Henry A. Bubb, a representative for the U.S. Reserve funds and Loan League, told the Ways and Means Committee, Aug. 9, 1961, that while the call of expense correspondence by investors may bid, it spoke to a proceeding with exertion to throttle rivalry and “to occupy to the business banks the business which they have been not able or reluctant to draw in individually.”
Protection of Savers in Thrift Institutions:
Ongoing disclosure of genuine maltreatment in the lead of reserve funds and credit activities in Maryland has raised concern somewhere else about the adequacy of security managed share account contributors under state laws. Until the point that medicinal enactment was embraced by the Maryland General Assembly in 1961, an investment funds and credit affiliation could be contracted in the state by any three people for a documenting charge of $30. Absence of any uncommon state controls or supervision of the organizations of state-sanctioned affiliations pulled in deceitful administrators who offered forthcoming savers high financing costs and luxurious presents for opening records. The endowments, contingent upon size of another record, went from timekeepers and radios to TVs and lavish hides. The new affiliations received great titles, for example, First Continental Savings and Loan Association and First Guarantee Savings and Loan Association, and led broad promoting furthermore, standard mail crusades promising remarkable rates of return (now and again of more than six percent).
Thrift or Saving institutions have been promoting home ownership for long time ago by providing funds to the housing field. This essay shows that the rol is quite important in the financial markets because it has been making a big impact in the life of many Americans in order to achieve their dream to achieve purchasing a home. From a customer perspective, thrift institutions have a big advantage over commercial banks: higher interest from consumer savings.
These institutions have the benefit to allow to customers to complete financial services product line from securities to insurance to banking. These advantages will weigh at least as heavily in the discussion as whether the thrift still needed to promote residential mortgage financing.

Small Business. An overview of Thrift Institutions. Retrieved from:
About the FHLBANK System- Federal Home Loan Bank System. Retrieved from:
From buildings and loans to bail-outs: A history of the American savings and loan industry, 1831-1990. Mason David.
Thrift vs. banks: whats the difference? Retrieved from:
Dickinson Jr., W. B. (1962) Thrift institutions and the mortgage market. Editorial research reports 1962 (Vol. I). Washington, DC: CQ Press

PESTEL Analysis of the Bank of Ireland

The banking industry has undergone a sustained period of change over recent years, and this pace of change is set to continue. In this paper, the “Bank” refers to Bank of Ireland (BoI) Group, and specifically BoI Markets and Treasury, which is the Bank’s customer treasury services provider and market risk manager. Using the PESTEL tool to analyse the broad macro-environment for banking, the two factors most pertinent to BoI at present are Technology and Legal.
Technology factors
Retail banks are experiencing unprecedented change and disruption from technology, with payments services at the forefront of customer switching habits. In recent years, customer expectations have shifted from the traditional face-to-face retail branch banking model of banking to always on, 24/7 contact through digital channels. The vast majority of Irish banking customers execute their day-to-day banking through online channels, mobile and tablet apps. “In the past decade, digital banking activity has almost quadrupled: it has grown from 23.3 million payments in 2007 to 87.1 million last year.” (BPFI Payments Monitor, H2 2017.)
“Customers have more choices, variegated customer needs can find expression, and supply alternatives are more transparent.” (Teece, 2010, p. 172).
Customers’ behaviours are being moulded by their digital experiences in other industries such as music and home entertainment. Fintechs operating in the Irish marketplace, e.g. Revolut or Transferwise, are offering superior customer experience, reduced fees and charges, and increased transparency for customers, thereby giving customers choice, where until recently there was none. Such disruption has caused changes in customer behaviour and expectations and consequently customer adoption virtually overnight.

According to a PwC Global FinTech report in 2017, and as is the experience with BoI currency payment customers, “more consumers will adopt non-traditional Financial Services providers. Early adopters will most often conduct payment and money transfer activities with non-traditional providers, and personal finance will emerge as the next most populous activity at risk.”

As is the case with BoI, legacy IT systems underpinning traditional banks are high cost, complex and difficult to innovate. In order to keep apace with this fast-changing market, BoI has had to replace its core banking platform, overhauling end-to-end customer journeys and revising its customer propositions.
Such strategy can be prohibitively complex or expensive, and per PwC 82% (of respondents) expect to increase FinTech partnerships in the next three to five years. In replacing its core banking platform, BoI could either stand up its own platform, or partner with a recognised banking software specialist, and as is becoming the norm, BoI has opted to contract the services of an established banking software specialist Temenos.
With the possible commoditisation of certain customer propositions, such as currency payments in BoI, technology factors will force traditional banks to re-assess their core business offerings, both business model and role in society. As such, where fintechs can offer a superior customer experience at a lower cost for certain services, e.g. payments, it will become prudent for traditional banks to focus their strategy on the core tenet of banking, value creation, and value-add service offerings such as advisory, with the potential to partner with or outsource certain services to fintechs.
New technologies such as artificial intelligence, data analytics, APIs, and Blockchain may also present traditional banks with significant opportunities in value creation and risk management. Per McKinsey, “Yet technology is not just a threat to banks. It could also provide the productivity boost they need. Many institutions are already digitizing their back-office and consumer-facing operations for efficiency. But they can also hone their use of big data, analytics, and artificial intelligence in risk modeling and underwriting—potentially avoiding the kind of bets that turned sour during the 2008 crisis and raising profitability.
Such emerging technologies may facilitate the automation of compliance and customer identification processes, such as Know Your Customer, which heretofore have been resource heavy, requiring significant manual intervention.
Legal factors
Arising from the global financial crisis and the subsequent sovereign debt crisis in the Eurozone, the European banking industry has experienced a prolonged period of regulatory reform, with banks facing a wave of new regulations in recent years including European Banking Union, PSD II, MiFID II, EMIR, Basel III, Benchmark Reform and the proposed EU Directive on Cross Border Payments. Moreover Brexit, in whichever manifestation, poses its own set of challenges to the European banking and payments industry.
As per Strumeyer and Swammy (2017), such regulatory reform “has started to significantly impact business models. It has affected the industry’s revenue earning capacity, it has led to a significant increase in costs of operations, and we are starting to see an impact on competition and concentration levels in the industry.”
This level of regulatory complexity poses significant resource and cost challenges to banks such as BoI, with investment in risk and compliance functions growing, and the burden of compliance here to stay. From a BoI Markets and Treasury perspective, there are several regulations and changes to the regulatory landscape that pose the significant threats to income and resource capacity, including the Payment Services Directive (PSD) 2, and the EU Directive on Cross Border Payments.
PSD2 came into force in January 2018, requiring banks to give third-party payment service providers (PSPs) access to their customer’s data through open API (Application Program Interface) technology, with the aim of increasing competition in payments services, as well as lowering the cost for customers.
PSD2 represents a significant step toward commoditization in the EU banking sector”. PSD2 is viewed as a game changer for the banking industry, posing significant challenges to incumbent banks like BoI, where minimum compliance has been the initial focus. Challenges include customer attrition to the above-mentioned Fintechst; and the inability to innovate at a sufficient pace due to legacy IT infrastructure and competing investment priorities; both of which will cause loss in revenues.
However, PSD2 also presents opportunities, not least inclining banks to “perform a rigorous self-assessment as they transition to the world of opening banking, including their market positioning and competitive strengths”. PSD2 encourages slow-to-innovate banks such as BoI to consider partnerships with fintechs, and the use of open APIs as a means to address gaps in their propositions, which may enable them to reach new customers and markets. “Banks can define their desired open-banking footprint. They should maintain or develop internal capabilities for products and services they deem “core” to their value proposition, but they might turn to third-parties for ancillary offerings”. (PwC 11th hour)
The proposed EU Directive on Cross Border Payments which was published by the European Commission in March 2018 will amend current cross border payment rules for all EU member states, with the express aims of lowering the cost of intra-EU cross-border currency payments in non-Euro countries, and increasing transparency regarding currency conversion practices. This proposed regulation will have a profound impact on the BoI Markets and Treasury currency payments business, where currently income is derived from cross border fees, as well as embedded margin on currency conversion.
Both technology and legal factors have caused major changes in the banking and payments industry in recent years, with the pace of transformation set to continue. Both factors require retail banks to determine their fundamental core propositions and innovate their business models accordingly. “Technological innovation often needs to be matched with business model innovation if the innovator is to capture value.” Teece, p186.
Teece: Business Models, Business Strategy and Innovation
Redrawing the lines: FinTech’s growing influence on Financial Services (PwC Global FinTech report)
BPFI Payments monitor H2 2017
Strumeyer and Swammy (2017) – The Capital Markets
PwC: The Future of Banking – Innovation