ECONOMIC ENGLISH FOR UPPER INTERMEDIATE

UNIT 8

BANKING

OBJECTIVES: familiarise with specific professional vocabulary change of the meaning from general to specific professional introduce in minimum professional knowledge passive voice HISTORY AND ORGANISATION OF BANKING IN ENGLAND I. Answer the following qestions before reading the text: 1. How do you think that banks appeared? 2. What is their role in market economy ? 3. Is there any diference in banking in a command economy and market economy? Modern banking has its origin in the finance of foreign trade. In the great medieval trading states of Venice, Genoa and later Florence, a need arose to exchange one currency with another and the early changers also began the practice of acceptance deposits of cash and valuables or safe-keeping. They also undertook the financing of commerce at the great medieval trade affairs, and they also were called upon to provide finance of the rulers of the states in which they were established, and they often became involved in financing the running of their own and other countries. Because of the power they were seldom popular. Readily indefiable groups, such as jews, were persecuted and sometimes expelled, and the laws against usury were strict. Since modern banking originated in the cities of northern Italy, it is not surprising that some of its basic vocabulary has Italian roots. The word "bank" itself comes from the Italian word "banco" meaning a bench. The "bankrupt" has the same origin and referrs to the practice of breaking the money-changer's bench to indicate that he was no longer able to honour his obligations and therefore unable to continue his business.

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When the Jews were expelled from England by Edward I in l29o, their place was taken by the Lombards, who were already established in England. They became the merchants and the important financiers in many European countries. The name of "Lombard Street" in the heart of the city of London is the permanent reminder of the importance of these early times. The accepting of deposits, the making of loans and the transfer of funds evolved during the seventeenth century with the growth of the goldsmithsbankers who had by that time, taken over from the Lombards as major financiers in England. Because of the nature of their trade, their premises had to be secured, and even before the l64o seisure, there is evidence that they accepted coin on deposit from their customers, issuing receipts for them. The receipts entitled the holder to the return of his actual deposit, but they later became promissory notes, giving the holder the promisse that he would be able to withdraw, on demand, as an equivalent to that deposited. Gradually, these notes themselves began to circulate among the merchants in the settlement of their debts. Thus, these receipts became the forerunners of the modern banknote. Then, the words "on bearer" were added after the name of the original depositor and they became "bearer instruments", giving them a greater circulation. The practice of placing money with goldsmiths with a given notice of required repayment had emerged, thereby originating what we call today "deposit accounts". The private banknote came into being, but in the following century he Bank of England gradually took over the function of exclusive note issuer, when it appeared as a historical necessity, when the Government of the day was in need for funds to pursue the war against France. In l773 the London private bankers also established a Clearing House that increased the ease of transfer and allowed the individual banks to keep a smaller total of cash in their tills with which to meet withdrawals and transfers. The fluctuating economic conditions at the beginning of the 19th century were attributed to the relatively unrestricted right to issue banknotes and the problems caused by over-issue, so the Bank Charter Act provided the control of note issue that eventually led to the Bank of England acquiring a monopoly of the note issue. Further developments took place as legislation and other changes brought about a restructuring in the supply of financial services. Increasing overseas competition and the freedom of building societies offered a much wider range of financial services.

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This is a far cry indeed from the goldsmiths' shops, woollen mills and mercers' premises where it all began three hundred years ago. II. Answer the following questions: 1. Where are placed the origins of the modern banking? 2. What are the roots of the banking vocabulary? 3. Who were the bankers of the world in Middle Ages? 4. Why did they become indesirable persons? 5. The jews were replaced by whom? 6. What was the story of the bank note? 7. What was the role of goldsmiths in banking history? 8. When and why did the Bank Charter Act came into force? III. Answer the following questions before reading the following text: 1. What role do you think that central banking has in economy? 2. Is important that central banking be autonomous? 3. What are the functions of central banking in the banking system of a country? Discuss in groups of 3 or 4 and write down the answers. THE BANK OF ENGLAND The Bank of England was established in 1694 by Act of Parliament and Royal Charter as a corporate body; the entire capital stock was acquired by the Government under the Bank of England Act in l946. The main functions of the central bank are to execute monetary policy, to act as banker to the Government, to act as a note-issuing authority and to exercise prudential supervision over and to provide banking facilities for the banking system. The central bank is also responsible for arranging government borrowings and managing the National Debt. The Exchange Equalisation Account and the register of holdings of the government securities are managed by the Bank of England, on behalf of the Treasury. It also oversees the soundness of the financial system as a whole. As the single note-issuing authority, The Bank of England issues banknotes in England and Wales, banknotes that are no longer backed by gold, that is fiduciary. The Scottish and Northern Ireland banks have limited right to issue notes that are mostly covered by holdings of Bank of England notes. The Bank of England has also the right to influence money market conditions through its dealings with the discount houses that appeared and developed in the nineteenth century as bill brokers for industrialists. The discount houses

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hold mainly Treasury, local authority and commercial bills, and negociable certificates of deposit financed by short-term loans from the banks. For covering a shortage of cash in the banking system the Bank can release it either by buying bills from the discount houses or by lending directly to them. This way the banks can replanish their cash balances at the Bank by recalling some of their short-term loans to the discount houses. The main wholesale markets in London for money, foreign exchange and gold bullion operated by professionals, are also supervised by the same central Bank. All the deposit-taking organisations require authorisation from the Bank of England and are subject of its supervision. The present banking legislation increased the Bank's power to modify the conduct of banking institutions, to investigate cases of illegal deposit-taking, to block bank-mergers and takeovers on prudential grounds. It also enables information to be shared, in strictly controlled ways, among supervisors in different financial services, and permits auditors to make reports to the Bank of England about a bank if the circumstances require it. The Bank may intervene in the foreign exchange markets to check undue fluctuations in the exchange value of sterling. As Europe moves towards economic and monetary union (EMU), we will be hearing more of the likely status of the Bank of England when it will join The European Central Bank, which has its central office in Frankfurt and it is independent of instructions. IV. Finding a title for each fragment, you will identify the principal functions of the Bank of England: .............................. The Bank is responsible for arranging government borrowing or repaying debt and for managing the National Debt. The Bank's principal role in government finance is to act on the Treasury's behalf to borrow money in the markets and from the public. The main forms of borrowing are through Tresury Bills, government bonds (known as gilts or gilt-edged stock) and occasional foreign exchange borrowings. The bank is responsible for issuing and redeeming these securities and maintains a register of gilts. ............................... The Bank is directly involved in executing the Government' monetary policy, thus providing a framework for non-inflationary economic growth. Unlike some central banks, the Bank of England cannot act independently of the government: Her Majesty's Treasury has an important role in providing advice and is closely involved

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in implementing government decisions on the appropriate level of interest rates through dealings in money markets. ..................................... The Banking Act in 1987 created a Board of Banking Supervision and increased the Bank's powers to modify the conduct of banking institutions, to investigate cases of illegal deposit-taking, to block bank mergers and takeovers on prudential grounds and to require information from banks. The Bank is also responsible for the supervision of the main wholesale markets in London for money, foreign exchange and gold bullion. The Bank may also intervene in the foreign exchange markets to check undue fluctuations in the exchange value of sterling. ...................................... The Bank has the sole right in England and Wales to issue banknotes which are no longer backed by gold but by government stock and other securities (known as the fiduciary issue of notes). Scottish and Northern Ireland banks have limited rights to issue notes. .................................... The Bank's money market operations are designed to smooth out fluctuations in the flow of cash betwen government and the private sector. Shortages of money are offset by the Bank buying short-dated bills and maturities from the market and lending funds to the market. When there is a surplus of money, the Bank seeks to offset this by selling Tresury and other bills. Normally, the pattern of government and Bank operations results in a shortage of cash in the market each day with the result that the Bank is the final provider of liquidity in the system and can help to implement and direct monetary policy by choosing the interest rates at which it provides funds. When the Bank changes its dealig rate the commercial banks tend to follow suit promptly and change their own rates from which deposit and lending rates are calculated. V. Can you re-build the history of the Central Bank of Romania following the milestones information ? 1861 - I.C.Bratianu: "As long as we don't have a Central Bank, financial crisis will not disapear in our country" 1880 - the foundation of the Central Bank 1/3 state shares; 2/3 public subscription 1880-1890 - covered the Independence War -.discount credits for agriculture 1901-1914 - state shares sold and the bank become entirely private 1914-1918 - finance the IWW

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1917- trasfer of the Romanian treasury to Moskow to be sheltered against the war - the entire activity of the bank transfered in Iasi 1929-1933 - the leu becomes convertible 1933-1944 - cover the II WW expenses 1946 the bank becomes a subject of nationalisation 1965 - State Bank of The Popular Republic of Romania 1971 - The National Bank of The Socialist Republic of Romania 1991 - The National Bank of Romania

The Functions of the National Bank of Romania VI. Draw out the functions of the National Bank of Romania in short from the following: The structure of the banking system prior to 199o in Romania combined the functions of a central bank and some functions of a commercial bank. Together with other state institutions it conceived the drafts of the credit and cash plans of the economy and monitored their implementation. It organised the granting of short term credits on the basis of approved plans and extended credits to entreprises and economic organisations that had accounts with it. The main monetary and credit objectives were to provide entreprises with required credit, so that they could meet their plan targets, to provide sufficient liquidity in the economy, consistent with the planned availability of goods. Now, the functions of the National Bank of Romania changed and they are covered by the Statute Law (Law No 34/l99l). Under this status, in order to preserve the political independence of the central bank, the Governor and the Board of Administration are appointed by the Parliament, at the recommendation of the Prime Minister, for an eight year renewable term. They can only be removed by the Parliament. The Board of Administration (president), the Senior Vice Governor (vice president), two vice Governors and another five members. The first article of the Status defines the role of the National Bank formulates and conducts monetary and credit policy within the framework of the country's economic and financial policy with the goal of preserving the stability of the national currency. In order to accomplish this, the National Bank of Romania determines the money supply in the economy, conducts the foreign exchange policy and supervises the commercial banks. Clearly, all these are done in the context of developing the "right" conditions for encouraging and sustaining economic growth. The National Bank of Romania is also the single institution to issue banknotes and coins, to manage the international reserves of the country, and grant an advance to the Central

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State Budget to cover temporary deficits, amounting up to 1o% of the total approved budget. The Board of Administration of the Bank meets regularly. It determines the broad parameters of the monetary policy and decides on such matters licesing of banks, introduction of new or changes in existing prudential regulations, actions on operating banks (extension of special loans, imposition of penalties, etc) and other policy in internal budgetary matters. District offices play a very active role in payment settlements. VII. Answer the questions: l. What was the role of the central banking in Romania in the command system, before l989? 2. Is there any change in central banking role in market economy? VIII. Listen to the cassette. Match the information heard with the one supplied by the following text; find additional information and write an essey about the role of banks as information producers in forecasting and implementing economic policies. The new theories emphasises banks as producers of information needed to facilitate evaluating risky lending opportunities, signaling the prospective borrower's creditworthiness. Commercial banks are superior information producers by evaluating the history of bank deposits for monitoring loans. The City of London IX. Answer the questions before reading the text: 1. What do you know about the City of London? 2. What does it represent? 3. Where is it placed? The City of London remains one of the World's great financial trading centres. It has undergone fundamental changes to meet the demands of industry and commerce and the increased "globalisation" of financial services, host to hundreds of foreign banks, with securities trading revolutionised by new technology, it continues to offer new services in lending, comodities trading, options and futures. Within its narrow area, the various markets and specialisations cluster in quite separate spots, banking here, insurance there, commodities here, shipping over there. Yet none is far from the others. It is possible to walk from one end of the City to the other in under twenty minutes and most of the main sections are within five minutes' walk of each other.

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Several parts of the City and its markets can still be visited. But it is no longer the easy arrangement it used to be. Some City markets, such as the new Lloyd's building, can and will cope with large numbers of visitors. Others, such as the Bank of England Museum, the London Metal Exchange, the Baltic Exchange cannot. Mansion House The Mansion House is the official residence of the Lord Major of London. It is also the venue for much of the City's hospitability where guests as the Prime Minister, Chancellor of the Exchequer, foreign Heads of States are invited to official banquets, the Lord Major is titular head of the Corporation of London, the City's governing body, which is responsible through its elected members for the administration of the City. Royal Exchange In the past, the Royal Exchange has housed the City's foreign Exchange market and Lloyd's. At present it is the home of the Guardian Royal Exchange and also the London International Financial Futures Exchange. Bank of England The nickname given to the Bank of England of "The Old Lady of Threadneedle Street" was first used in James Gillroy's cartoon of 1797. The Bank expanded to cover at present a large site in the eighteenth century and it was finally rebuilt at the beginning of the last century. London Stock Exchange Has its origins in the sixteenth century and as the scale of commercial activity has incresased, especially in the last 150 years, the Exchange has expanded to handle the increased demand for capital. Today over 7000 securities are listed on The London Stock Exchange with a turnover of 1666600. The present building was opened by the Queen in 1972. Lloyd's Lloyd's of London is an international insurance market. Insurance risks are placed with individuals underwriting members who have personal and unlimited liability. Curently, there are over 25000 members divided into some 345 syndicates. . London Futures and Options Exchange (London FOX) London FOX is a major international centre for the trading of soft commodities. These include cocoa, robusta coffee, raw and white sugar, potatoes, grain, soya bean meal, rice, etc. Banking

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Money is at the heart of the City, and so are the banks which deal with money and, to some extent, even create it. A Bank is not necessary for the basic mechanism of exchange. What a bank is useful for is the next step in the development: the creation of credit. Amazingly, despite London being regarded as a major centre, no definition existed of a bank prior to 1979. At that time a Banking Act was passed resulting from the secondary banking collapse of the 1980s. The Act defined a bank and established a two-tier status. The largest banks, providing a comprehensive range of services, were known as recognised banks, whilst smaller and more specialised institutions were known as licensed deposit takers. The two-tier system was abolished by the Banking Act 1987 and now there is a single category of "authorised institutions" which can vary from Barclays Bank to the financial subsidiary of Marks and Spencer. X. Find the following words in the dictionary and place them in the blanks of the text: margin, render, profit, raise, margin, yield, deal, maturity, investment, charge, cater, supermarket Comercial banks, or retail banks ... the service of holding deposits, paying money at customers' instruction, lending money, ... for investment, exchanging foreign currency, and so on. The difference between interest rates paid and their yield ... to the customers represents it .... and it is named spread or ... But when lending the commercial banks must always find a balance between the yield and the risk on one hand and liquidity and... of the loans on the other hand. The recent developments have enabled banks to emphasise and ... for different customers needs, extending from retail financial services, including counseling advice, to business develpment needs. Merchant banks have proved to be some of the more flexible financial British institutions. They have no longer the financial muscle of the nineteenth century but they still ... funds for industry on financial markets, finance international trade, issue and underwrite securities and ... with mergers and takeovers. Similar banks are called ... banks in SUA, rendering services in industry, without offering loans. In recent years the difference between commercial or retail banks and merchant or investment banks became lesser and lesser visible. Huge financial institutions appeared which render services of banking, insurance, stockbroking, investment advice, making financial ... . XI. Turn into passive, according to the model. 1. Most people produce goods and services. Goods and services are produced by most people. 1. Economists study the economic phenomena to discover new tendencies. 2. Economic changes affect our lives 3. He told me how the capitalist system works. 5. He tried to prove how farmers produced more in their country.

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XII. Form new words from the words listed below: exemple: capital - capitalism - capitalist - capitalistic Note the suffix: - ism - system (noun) - ist - person (noun) - istic - about the system or person (adjective) a) commune, b) social, c) national, d) real, e) individual XIII. Translate into English: A. "Banii sunt o informaie n micare" - John Naisbitt, Megatendinte, 1989 "...Informaia este la fel de important, ba chiar mai important dect pmntul, munca, materiile prime i capitalul" - Alvin Toffler-Corporaia adaptabil, 1993 "Informaia este esena problemei. Ea poate deschide drumul spre succes. Ea influeneaz modul de apreciere a realitii i hotrrile pe care le lum." - Herbert Cohen, Orice se poate negocia - 1995 Informeaz-te dimineaa, ia o decizie la amiaz i treci la aciune a doua zi, dup o noapte de reflecie - (anonim) "Morala i economia politic resping deopotriv pe individul care consum fr s produc." - H.de Balzac-Maxime i cugetri,1979 Cnd ai ndoieli, ntreab, cnd nu ai ndoieli, ntreab. Ceea ce merit s fie fcut, merit s fie bine fcut. - Cugetri engleze, 1980 Doar cei ce s-au ajutat singuri stiu cum s-i ajute pe alii i s respecte dreptul lor de a se ajuta singuri. - Cugetri engleze - 1980 Nici o zi fr s tragi o linie. (cugetare latin) Exist totdeauna motive excelente pentru a nu aciona; numai c, dac motivele predomin, lucrurile rmn nefcute - G.B.Shaw B. Mutaiile produse pe parcursul secoului trecut n sistemul economic al rilor dezvoltate nu se pot separa de creterea spectaculoas a puterii instituiilor de credit. Un rol esential n dezvoltarea economic revine capitalului de imprumut, sistemul bancar i de credit adaptndu-se condiiilor i exercitnd un rol tot mai important n viaa economic. Procesul de concentrare a capitalului are ca rezultat constituirea de gigani economici, din care fac parte uniti de mare capacitate, din diferite ramuri, ceea ce confer conglomeratelor o deosebit for. Chiar n secolul XIX bncile devin nucleele, centrele nervoase ale acestor grupri economice extinse treptat la scara mondial. Astfel, casa bancar Baring, prezena n afaceri din secolul al XVII-lea, constituind proprietatea unei singure familii de financiari, se transform n aceast perioad, dup crahul financiar din 1890 n societatea pe aciuni "Baring Brothers and Company". Prin absorbiri, participri n lan au aprut Lloyds Bank, care ngloba nu mai puin de 38 de bnci particulare i 15 societi de banca pe aciuni, Barclays

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Bank, care i are originile ntr-o cas cmtreasc din secolul al XVII-lea "Latrei ancore" i care ajunge, la sfritul secolului XX s-i depeasc toi cocurenii, axndu-se pe o puternic penetrare n colonii, fiind una dintre forele financiare care au contribuit la extinderea imperiului britanic, alturi, de exemplu, Compania Indiilor Orientale transformat n Calcutta Bank, Bombay Bank, Madras Bank, Hong Kong and Shanghai Banking Corporation, etc.