Archive for June, 2009

Join the Colorado Progressive Coalition for: Loan Shark Week as we explore the habits, habitat, and characteristics of this horrifying and invasive species. Tune in for rare video footage of their money massacres. Payday Loan Sharks are most commonly observed throughout the states low-income communities. Highest concentrations are found in communities that have been particularly hard hit by the economic downturn. The Payday Loan Shark is also found in many other economically distressed parts of the country, though some states have effectively eliminated the beast through regulation. They generally prefer high elevation habitats like Colorado where lawmakers allow Payday Loan Sharks to charge whatever interest rates they wish (often upwards of 500% ). Today in Colorado there are more Payday loan sharks (lenders) than Starbucks and McDonald’s combined.

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Russ Mitchell asks financial expert Ray Martin just how concerned investors should be in this economy. (CBSNews.com)

Thinking about financial planning shouldn’t be reserved for the times when you are in trouble. Dealing with your money shouldn’t always come at times when you are scrambling for answers. You can develop a plan that brings you security. But, to find out what you need to do and when you need to do it, you are going to need some professional personal finance help.

Help From a Pro

In order to get your finances in order, you’ll need help from a Denver personal financial advisor. Your advisor should have training to help you reach your goals in both the near and long term. Also, your Denver personal financial advisor should give recommendations on how to pay for education and your retirement with savings. That’s what you need from a Denver financial advisor — well thought advice based on experience to help you analyze your present financial position. The advisor will get you on the right track with your assets, salary, and savings.

How Your Advisor Will Help You

Do you really need a Denver financial advisor? Yes. Here are some reasons why. You need:

• Advice on investing

• Advice on retirement savings

• Advice on estate planning

• Advice on business planning

You may not know anything about investing, so you should research what successful people do and what lessons they can teach. There is no magic formula, so don’t expect one. But there are decisions you can make to help you do better. In your retirement planning, you need to work on a plan to give you the money you need when work ends. In estate planning, you need to make sure the money you have built up will be given out as you desire. Finally, if you want to protect the future of your business or invest in one, you need to speak with a Denver financial planner who will help with that goal.

When you find a Denver financial advisor, you need to see what kind of fees they are charging. You want fee only, that way they only charge a percentage of the assets they oversee. They will work on your plan, while you focus on living your life and working on your dream. They will bring you peace of mind.

One of the top investment advisors in Denver is Patrick Johnson. He is focused on how his financial planning services can assist you in reaching your long term goals. He knows you have specific needs that must work in conjunction with the plan that he will develop.

Are you reeling under bad debts which are very much visible to a lender and therefore a new loan may become difficult to avail? Well, despite bad debts you can borrow requirement amount of loan as host of lenders are offering bad debt loans. Bad debts are those debts which have become huge burden to repay. Lenders usually take extra caution in offering yet another loan to such people. But on meeting some conditions the lender will provide you the loan.

Through bad debt loans you can fulfill variety of purposes. You can pay off debts through the loan amount. Or you can use the loan for home improvement to enhance home value that builds equity in it. Also purchasing a car, planning a wedding party, going to holiday tour or debt consolidations are some of other purposes for taking Bad Debt Loans.

In offering loans to bad debt people, lenders prefer borrowers who have a good repaying ability. So, your current earning should be good with sound bank statements of past few months to convince the lender that you now are in a good position for timely repaying the loan installments. Better show an assuring repayment plan for better loan approval results.

To reduce the risks for the lender, you should offer some property like home to the lender as collateral. Secured bad debt loans are easily accessible. But collateral should be offered only when you require greater loan amount. Secured bad credit loans, apart from offering greater amount, also have comparatively lower interest rate on it. You can choose to repay the loan in 5 to 25 years as suits to your earnings.

If smaller loan is the requirement, go for unsecured bad debt loans which are given without collateral. But interest rate will be on higher side. Repayment duration ranges shorter from 5 to 15 years depending on loan amount.

Bad debt loans are available for bad credit history people as well if they are in a position of returning the loan in timely manner. However lenders will charge interest at enhanced rate. Compare different lender claiming to be having right bad debt loans. Apply to a suitable lender having offer for your circumstances. And pay off the loan in time to avoid debts and to improve your credit score.

Financial Markets (ECON 252) Real Estate is the biggest asset class and of great importance for both individuals and institutional investors. An array of economic and psychological factors impact real estate investment decisions and the public has changing ideas of real estate as a profitable investment. People’s demand to buy a home by taking on long-term debt, called a mortgage, is often tied with the overall health of the economy and financial markets. In recessions, home buying tends to fall and the opposite holds in a strong economy. Commercial real estate, held indirectly by the public through partnerships and real estate investment trusts (REITs), is vulnerable to similar speculative activity. The most recent real estate boom illustrates the speculative nature of real estate, and its relation to financial and economic crises. Complete course materials are available at the Open Yale Courses website: open.yale.edu This course was recorded in Spring 2008.

THE CHALLENGES AHEAD OF BANKS

                                                                     *G.JAYALAKSHMI., Ph.D Research Scholar

  

INTRODUCTION 

           

 

India’s banking industry is at a watershed. Evidence from across the world suggests that a sound and evolved banking system is required for   sustained economic development. India has a better banking system in place Vis a Vis other developing countries, but there are several issues that need to be ironed out.

           

A strong performance in the current year, strengthening the positive trends of the past, will certainly improve the short-term risk perception but focus must rest on key structural changes that have to occur if Indian banking is to be a positive force and not a drag on the rest of the economy.

           

It has met and successfully overcome several challenges over the last decade. But bigger challenges lie ahead. In this paper, we try and look into the challenges that the banking sector in India faces.

 

Interest rate risk

           

The first and most obvious challenge will come from rising interest rates. The current perception is that interest rates have stopped falling and are likely to remain steady, but if demand for resources picks up as firms start to invest in new capacity and boom conditions fuel consumption demand, then there may be a tightening of liquidity and upward pressure on interest rates.

 

Interest rate risk can be defined as exposure of bank’s net interest income to adverse movements in interest rates. A bank’s balance sheet consists mainly of rupee assets and liabilities. Any movement in domestic interest rate is the main source of interest rate risk.

           

            Over the last few years the treasury departments of banks have been responsible for a substantial part of profits made by banks.

 

Now as yields go up (with the rise in inflation, bond yields go up and bond prices fall as the debt market starts factoring a possible interest rate hike), the banks will have to set aside funds to mark to market their investment. This will make it difficult to show huge profits from treasury operations. This concern becomes much stronger because a substantial percentage of bank deposits remain invested in government bonds.

           

Banking in the recent years had been reduced to a trading operation in government securities. Recent months have shown a rise in the bond yields has led to the profit from treasury operations falling. The latest quarterly reports of banks clearly show several banks making losses on their treasury operations. If the rise in yields continues the banks might end up posting huge losses on their trading books. Given these facts, banks will have to look at alternative sources of investment.

 

 

 

Non-performing assets

           

The best indicator of the health of the banking industry in a country is its level of NPAs. Given this fact, Indian banks seem to be better placed than they were in the past. A few banks have even managed to reduce their net NPAs to less than one percent (before the merger of Global Trust Bank into Oriental Bank of Commerce, OBC was a zero NPA bank). But as the bond yields start to rise the chances are the net NPAs will also start to go up.

 

This will happen because the banks have been making huge provisions against the money they made on their bond portfolios in a scenario where bond yields were falling.

 

Reduced NPAs generally gives the impression that banks have strengthened their credit appraisal processes over the years. This does not seem to be the case. With increasing bond yields, treasury income will come down and if the banks wish to make large provisions, the money will have to come from their interest income, and this in turn, shall bring down the profitability of banks.

 

Capital adequacy norms

           

            A third and a key challenge will be the introduction of Basle II capital adequacy norms. These will make two demands on banks.

 

They will have to measure the risks they bear much better. For this they will need to overhaul their management information systems so that they have a clear and quantifiable idea of their risks.

 

            Then they will have to look for capital to back that risk and ultimately earn enough to be able to service that capital. R Ravimohan, managing director of Crisil, feels that the future is all about technology and risks.

 

There is a huge potential for undertaking risk assessment by using technology. It is imperative for banks to grow but the key issue is deciding where and how.

 

            New ways or managing risk and asset-liability mismatches, like asset securitization, which unlocks resources and spreads risk, are likely to be increasingly used.

 

Competition in retail banking

           

            The entry of new generation private sector banks has changed the entire scenario. Earlier the household savings went into banks and the banks then lent out money to corporate. Now they need to sell banking. The retail segment, which was earlier ignored, is now the most important of the lot, with the banks jumping over one another to give out loans.

 

The consumer has never been so lucky with so many banks offering so many products to choose from. With supply far exceeding demand it has been a race to the bottom, with the banks undercutting one another. A lot of foreign banks have already burnt their fingers in the retail game and have now decided to get out of a few retail segments completely.

 

The nimble footed new generation private sector banks have taken a lead on this front and the public sector banks are trying to play catch up. The PSBs have been losing business to the private sector banks in this segment. PSBs need to figure out the means to generate profitable business from this segment in the days to come.

 

Conclusion

           

Over the last few years, the falling interest rates, gave banks very little incentive to lend to projects, as the return did not compensate them for the risk involved. This led to the banks getting into the retail segment big time. It also led to a lot of banks playing it safe and putting in most of the deposits they collected into government bonds.

 

Now with the bond party over and the bond yields starting to go up, the banks will have to concentrate on their core function of lending.

           

The banking sector in India needs to tackle these challenges successfully to keep growing and strengthen the Indian financial system.

 

            Furthermore, the interference of the central government with the functioning of PSBs should stop. A fresh autonomy package for public sector banks is in offing.  The package seeks to provide a high degree of freedom to PSBs on operational matters. This seems to be the right way to go for PSBs.

 

            The growth of the banking sector will be one of the most important inputs that shall go into making sure that India progresses and becomes a global economic super power.

 

 

 

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“Listen to advice and accept correction, then in the end you will be wise.” This old proverb holds true not only for real estate investors, but also for people from all walks of life. You’ll become a better person by accepting your mistakes and taking the advice of other.

However, not all “words of wisdom” should be taken at face value, especially a real estate investing advice. As we all know, the real estate investing business is a highly competitive, albeit rewarding, industry and taking an advice from the wrong people can lead to disaster.

Nowadays, a real estate investing advice can be found everywhere – on blogs, articles, videos, and other instructional materials. Everybody seems to be an expert in all things concerning flipping, wholesaling, and rehabbing properties. However, not everyone is qualified to give advice so you should carefully scrutinize a mentor or guru before paying attention to his words.

When looking for a sound advice, listed below are some real estate investors that you should approach:

Someone who has  working strategies

Before taking a real estate investing advice from a certain mentor, see to it that that mentor is practicing what he’s preaching. Always remember that there is no room for theories and speculations in this business. Therefore, you should take advice from real estate investors who can prove that the techniques they are teaching are working on every real estate market.

Someone who has been in the real estate investing business for a long time

A person who has been investing in real estate for more than ten years can give you great words of wisdom. Because they have been in the business for so long, they know exactly what to do in case major changes in the real estate market occur.

Someone who has great credibility and integrity

If you want to succeed in this business, follow the examples of honest and trustworthy investors. These people are good role models because they are making money without taking advantage of their clients and business partners. Real estate investors like them can steer you to the right direction and give you good a real estate investing advice.

For great real estate investing advices, meanwhile, you can go to www.REIWired.com. The website is home to various learning resources provided by veteran real estate investors who have functioning real estate investing strategies, as well as credibility and integrity. If you want to receive a good advice that can change your life, visit REIWired now.

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There is a reason why accounts receivable financing is a four thousand year old financing technique: it works. Accounts receivable financing, factoring, and asset based financing all mean the same thing as related to asset based lending- invoices are sold or pledged to a third party, usually a commercial finance company (sometimes a bank) to accelerate cash flow.

In simple terms, the process follows these steps. A business sells and delivers a product or service to another business. The customer receives an invoice. The business requests funding from the financing entity and a percentage of the invoice (usually 80% to 90%) is transferred to the business by the financing entity. The customer pays the invoice directly to the financing entity. The agreed upon fees are deducted and the remainder is rebated to the business by the financing entity.

How does the customer know to pay the financing entity instead of the business they are receiving goods or services from? The legal term is called “notification”. The financing entity informs the customer in writing of the financing agreement and the customer must agree in writing to this arrangement. In general, if the customer refuses to agree in writing to pay the lender instead of the business providing the goods or services, the financing entity will decline to advance funds.

Why? The main security for the financing entity to be repaid is the creditworthiness of the customer paying the invoice. Before funds are advanced to the business there is a second step called “verification”. The finance entity verifies with the customer that the goods have been received or the services were performed satisfactorily. There being no dispute, it is reasonable for the financing entity to assume that the invoice will be paid; therefore funds are advanced. This is a general view of how the accounts receivable financing process works.

Non-notification accounts receivable financing is a type of confidential factoring where the customers are not notified of the business’ financing arrangement with the financing entity. One typical situation involves a business that sells inexpensive items to thousands of customers; the cost of notification and verification is excessive compared to the risk of nonpayment by an individual customer. It simply may not make economic sense for the financing entity to have several employees contacting hundreds of customers for one financing customer’s transactions on a daily basis.

Non-notification factoring may require additional collateral requirements such as real estate; superior credit of the borrowing business may also be required with personal guarantees from the owners. It is more difficult to obtain non-notification factoring than the normal accounts receivable financing with notification and verification provisions.

Some businesses worry that if their customers learn that a commercial financing entity is factoring their receivables it may hurt their relationship with their customer; perhaps they may loose the customer’s business. What is this worry, why does it exist and is it justified?

The MSN Encarta Dictionary defines the word worry as:

“Worry

verb (past and past participle wor•ried, present participle wor•ry•ing, 3rd person present singular wor•ries)Definition: 1. transitive and intransitive verb be or make anxious: to feel anxious about something unpleasant that may have happened or may happen, or make somebody do this

2. transitive verb annoy somebody: to annoy somebody by making insistent demands or complaints

3. transitive verb try to bite animal: to try to wound or kill an animal by biting it

a dog suspected of worrying sheep

4. transitive verb

Same as worry at

5. intransitive verb proceed despite problems: to proceed persistently despite problems or obstacles

6. transitive verb touch something repeatedly: to touch, move, or interfere with something repeatedly

Stop worrying that button or it’ll come off.

noun (plural wor•ries)Definition: 1. anxiousness: a troubled unsettled feeling

2. cause of anxiety: something that causes anxiety or concern

3. period of anxiety: a period spent feeling anxious or concerned…”

The opposite is:

”not to worry used to tell somebody that something is not important and need not be a cause of concern (informal)

Not to worry. We’ll do better next time.

no worries U.K. Australia New Zealand used to say that something is no trouble or is not worth mentioning (informal)”.

Query: if a business is financing their invoices with accounts receivable financing, is this an indication of financial strength or weakness? Query: from the point of view of the customer, if you are buying goods or services from a business that is factoring their receivables, should you be concerned? Query: is there one answer to these questions that fits all situations?

The answer is it’s a paradox. A paradox is a statement, proposition, or situation that seems to be absurd or contradictory, but in fact is or may be true.

Accounts receivable financing is both a sign of weakness with regard to cash flow and a sign of strength with respect to cash flow. It is a weakness because, prior to financing, funds are not available to provide cash flow to pay for materials, salaries, etc. and it is an indication of strength because, subsequent to funding cash is available to facilitate a business’ needs for cash to grow. It is a paradox. When properly structured as a financing tool for growth at a reasonable cost, it is a beneficial solution to cash flow shortages.

If your entire business depended on one supplier, and you were notified that your supplier was factoring their receivables, you might have a justifiable concern. If your only supplier went out of business, your business could be severely compromised. But this is also true whether or not the supplier is utilizing accounts receivable financing. It’s a paradox. This involves matters of perception, ego and character of the personalities in charge of the business and the supplier.

Every day, every month thousands of customers accept millions of dollars of goods and services in contracts that involve notification, verification and the factoring of receivables. For most customers, “notification” of accounts receivable financing is a non-issue: it is merely a change of the name or addresses of the payee on a check. This is a job for a person in the accounts payable department to make a minor clerical change. It is a mainstream business practice.

Bobby McFerrin wrote and performed a song called “Don’t Worry, Be Happy” for the movie “Cocktails” starring Tom Cruise. The song was a number one U.S. pop hit in 1988 and won the Grammy for Best Song of the Year. Here are the lyrics:

”Here is a little song I wrote

You might want to sing it note for note

Don’t worry be happy

In every life we have some trouble

When you worry you make it double

Don’t worry, be happy……

Ain’t got no place to lay your head

Somebody came and took your bed

Don’t worry, be happy

The land lord say your rent is late

He may have to litigate

Don’t worry, be happy

Look at me I am happy

Don’t worry, be happy

Here I give you my phone number

When you worry call me

I make you happy

Don’t worry, be happy

Ain’t got no cash, ain’t got no style

Ain’t got not girl to make you smile

But don’t worry be happy

Cause when you worry

Your face will frown

And that will bring everybody down

So don’t worry, be happy (now)…..

There is this little song I wrote

I hope you learn it note for note

Like good little children

Don’t worry, be happy

Listen to what I say

In your life expect some trouble

But when you worry

You make it double

Don’t worry, be happy……

Don’t worry don’t do it, be happy

Put a smile on your face

Don’t bring everybody down like this

Don’t worry, it will soon past

Whatever it is

Don’t worry, be happy”

The bottom line: “notification” should not be an issue in most situations involving accounts receivable financing; non-notification factoring is another option that is available for businesses concerned with confidentiality that meet minimum credit standards for asset based lending. Bobby McFerrin was right: “Don’t Worry, Be Happy”.

Copyright © 2007 Gregg Financial Services

www.greggfinancialservices.com

In UK, a serious concern over the stint of personal debt has risen up and most of the UK lenders of loans have come up with a number of suggestions. They have also introduced a number of ways or loans to help the people with personal debt to fight back this problem of having personal debt. There is UK personal debt loan now to help you out.

UK personal debt loan is a loan which has specially designed to get people hooked off personal debt only. There is UK personal debt loan again, for everyone, since any one my have a personal debt. UK personal debt loan is there for both the kind of people who can pledge collateral for their loan and for those who can not pledge anything. The latter one, the unsecured UK personal debt loan where you are not required to pledge any collateral has become quite popular among the tenants and homeless citizens of UK. Again, if you can pledge collateral for your loan, you can grab easy repayment structure and cheap rates in your UK personal debt loan.

But, one may ask, how is the loan beneficial? Well, UK personal debt loan offers you the facility to save yourself from the clutches of multiple debts. Having multiple debts mean you will have to pay multiple interest rates too. This makes the repayment tough. So, UK personal debt loan offer you to combine and pay off all your existing debts through your UK personal debt loan, which is a single loan. Single loan means you have to pay single interest rates also and here is the thrust of UK personal debt loan; it reduces your burden to make you able to repay your debt easily.

However, UK personal debt loan is available online and this is another factor which contributes much in its viability as an effective mode of combating debt. Here, you will have a large array of lenders and this makes the choice easier. Also, the pace of loan processing is fast enough to add into your ease. UK personal debt loan is a colorful example of what a loan can do in helping out its borrowers in their fight with debt.

Restructuring: concept, goal and contest. Termini restructuring is of Latin origin and means changing-improvement of the structure of some object or system, i.e. its forms and consistence (morphology). It basically means unchanged character of directions of its functioning. They use restructuring from large plan in the economical texts mostly with debts, including foreign ones, payments and taxation (trade) balance, corporation sector of the economy and of separate enterprises, of banking system entirely and separate banks (other credit organizations).

They define “restructuring” in legislation in the following way: restructuring of credit organization is a complex of activities directed towards eradication of financial fluctuations of the organization and recovering its pay abilities or towards realization of liquidity of this organization. This definition doesn’t make needed opinion about the occasion to be discussed, as, in the first place, here they mean only separate credit organizations and not banking system itself, and, second, it has very technical character and mixes the essence and contest of the process of restructuring with the activities, which may (or must) be realized in this process.

Thus, there is not common, widely excepted definition of restructuring, though majority agrees with the idea, that we must consider restructuring to be readjustment of (cure) of banking system and its taking out of the crisis phase, also its returning to the conditions of good labor abilities. They sometimes use termini of “stabilization of banking system”, but we consider it to be comfortable. The fact is, that achieving stability may be provided in various ways, including the one of liquidating whole system. There is another point of view, that they consider restructuring to be the process for overcoming difficulties, appeared during the crisis. This point of view is not quite fluent.

Thinking of the essence of the affair and not its definition, hen we must consider in reconstruction of banking system as a process – totality of decisions and actions. Its basic elements are:

eradication and minimization of negative influence of bad macro-economic, political and other common factors upon situation and perspectives of functioning of banking system; improving systemic organization (structure, kinds, types) of totality of credit organizations, creation of conditions for effective and civil competition among them; improving legislative base for mutual-advantage collaboration and organization-economic mechanisms among credit organizations and their clients; increasing quality of managing entire banking system and its separate elements; financial cure of separate banks and other credit organizations; effective (with minimal social experiences) liquidation of vital credit organizations.

Foreseeing these elements, we can state following definition: restructuring banking system in managed process of its global readjustment (improvement), supported by changing in industrial, cash, taxation, budgetary and information policy, also in the policy of the banks themselves, and which is directed towards formation of banking system adequate to effective, trustful and dynamically developed modern requests.

According to this definition, restructuring effective, stabile and healthy banking system in not needed (though, it is possible to improve or reform it). Thus, restructuring is a cure (curing something that is not healthy), i.e. restructuring may be understood and must be understood to be the process, with the help of which banking system of concrete country transit to the new level of development. It is also evident, that restructuring is curing of such systems, which are in crises and can not get out of it without help. Finally, from the point of restructuring (privately displaying necessity of financial curing) we must discuss absolutely every bank. In this case, restructuring, as a process of readjustment, seems to have its own instrumentation, which will not be bounded only with the instruments of ordinal procedure banking management?

According to the mentioned above, we can make main goal of restructuring process of banking system – its recovery and taking its movement to the relatively new trajectory, at which it already gains earlier lost potential of progressive development and becomes adequate to the real sector of the economy again.

In relation with this, we must pay attention to the following principle requests towards the context of the process to be discussed: activities provided in relation to the restructuring will be profitable only in case, if we foresee not only reasons of banking crisis, but also define those fundamental; defects of economical relations, which make banking system viable at the modern stage; restructuring of banking system, which, in fact, must give rise to its reanimation in the earlier condition, doesn’t solve problems neither of whole system, nor of the country economy; it is necessary to process not only tactical activities before starting the process of restructuring, but also to set strategic objects: to receive such structure of banking, which will be adequate to the goals and functions standing towards the banks at the new stage;

 while processing activities of reforming banking system they must clearly define a circle of those problems, which must be solved during the process of reforming with the help of renewed banking system and they must set the price of activities;

effective restructuring requests combined methods of approaches towards the problems. World practice processed principles and methods of approaches of solving banking crisis, approbation of which showed their sufficient effectiveness. It is nonprofessional and not expedient to use some principles and refusing others;

a process of solving crisis may not be fast, simple or cheap.

Th8is common goal, mentioned above, in its turn, may be concreted into the list of those problems, working at which must form real concept of restructuring process according to the conditions in modern Georgia:

eradication of conditions provoking banking crisis, solving problems in relation with banking sphere and real sector; financial curing of those problematic banks, which have kept viability and perspectives of development, also state support of those banks, which have abilities of effective usage of this aid; providing trustful satisfaction of basic current requests on bank services (payments and short-termed crediting) of the industrial subjects; foundation of a new, more complete structure of banks and other credit organizations (according to the forms, measures of the property, regional distribution and so on); Creation of more complete rules and instruments regulating new rules of banking activities and of this activities; Creation of conditions. Mechanisms and stimuli for turning banks to the side of enterprises, for their involving into the process of further production, also overcoming inflexibility of the banks in the process of solving investment problems; Recovering trustfulness among banks; Recovering trustfulness in relation with the banking system, appearing stimuli among population for putting their savings on the accounts; Creation of the stimuli for increasing responsibilities  and effectiveness of the bank managers; Civilly closing of not viable banks and fulfillment of the mechanisms of their liquidation.

There is an idea about the fact, that main goal of restructuring banking system is recapitalization of the banks (recovering lost a capital and its further growth), but it is not quite correct: since today the hardest problem is, that a spectra of profitableness and trustfulness of capital investment is very tight.

Some bankers offer such understanding of restructuring and such pragmatic activities of radical reforming of banking system, the essence of which finally has been brought to the regrouping of the almost bankrupted banks according to the principles of specialization (specialized banks working in the country scale, banks oriented towards export or those obligated in the groups of large enterprises, also regional banks). they meant, that new “system forming” groups would obey to the strict control of appropriate governmental structures or groups of enterprises, in exchange of it, it will have right for working on budgetary resources. Suggestions of separate bankers were not related with the problems of recovering whole banking system.

We can form basic problems of restructuring banking system in the following way:

Transiting to the foundation of a healthy market banking system by readjustment of separate problematic banks, providing structural reform of banking system;

Increasing whole capital of banks and filling banking system with long-termed resources;

Creation conditions stimulating growth of the quality of market commercial banks, including those in the regions.

Main goal of restructuring program must be: creating such layer of technological market commercial banks, which provides marketing policy and makes basic profit from credit-operations. It is interesting, that within the bound of 2-3 years program share of such capital in the banking system may reach up to 30-40%, and credit share in the credit portfolio of banking system – 30%. Share of profit made from crediting in whole income of banking system must not be less, than 6%. Half of such healthy banks must still function in the regions.

The concept of those first steps, which must make foundation to the realization of effective program of restructuring banking system, must be formed in this way:

processing a conception of developing banking system and its taking as a manual 2-3 years earlier; consisting a program on working at the passed liabilities and its realization;We mean that a special state organ working on restructuring purchases from the banks their “bad money;. realizing recapitalization of the banks. we mean, that the same  or other state organ enters the capitals of the banks for a little time, increases this capital and credit potential of the banks and then sells its share in the capitals of the banks; passing the law about guaranteeing deposits of the people in the commercial banks on time; creating equal conditions for competition and development of every bank. We must refuse other banks “having social importance”, “forming a system” and somehow “related” with somebody; clear formulating of the role of government and state banks in the banking system; realizing evident support of regional market commercial banks; creating effective mechanisms of developing infrastructure of the banks and their functioning; changing a system of taxation of commercial banks; processing and realization of activities refinancing commercial banks by the central bank; creation and realization of the package of legislative and organization activities developing hypothec crediting; fastening the process of transiting commercial banks to the international standards of accounting

 Restructuring: principles and conditions. We can name following to be the obligatory principles (main rules) of the process restructuring banking system:

A principle of solidary obligations. The essence of it is, that in the mentioned process there participate (with out resources) and coordinate the banks themselves (in the first place – the owners), their creditors and the government. It is impossible to restructure banking system without state support. Though, it is evident, that the state will not be able to support every bank, having extremely reduced resources. Accordingly, the banks in the first place must try to solve their problems independently and the managers and creditors of the cured banks must stand on the advantage position.

The principle of minimizing loss and expenses. It says, that while realizing restructuring we must consider those activities, which give the opportunities of overcoming crisis with the less budgetary expenses (financial expenses of the society) and with little loss from the side of banking system and the clients of banks to be more prior.

Liquidation of problematic banks is much losable, but socially more difficult way. It needs especially measured method of approach towards the problems of the depositors the banks to be liquidated. Fast liquidation of not solvent banks may deepen the crisis (an Indonesian example in 1997-1998). According to the estimation of numbers of experts, best way out of it is confluence of the problematic bank with the healthy one, though this is quite doubtful recommendation.

A principle of minimizing liquidation requests to give priorities to the activities of reorganization and support and not bankrupting in the process of restructuring and financial curing.

A principle of just distribution of expenses on restructuring mean, that the stated part of expenses on curing banks must be compensated by those, who receive risks related with these banks, are responsible for their loss and make profit after restructuring (i.e. participants of the banks, its highest administration). Economical obligation of not solvent managers and owners of the banks may be expressed, for example, by adequate reduction of their own banking capital, their participation in the restructuring process in the way of additional entering in the bank capitals. Part of the loss may be covered at the expense of the depositors.

A principle of strategic method of approach means definition of the strategic problem, what kind of banking system is wanted by the society after restructuring (in the condition if it conforms to the new purposes and functions of the banks at the new stage). Only after this they must select advantage and agreed activities, which may be recommended for readjustment of separate banks and its entire system.

A principle of complex method of approach means, that a system defined by the program must be fulfilled completely. It is impossible to bring whole concept of reconstruction process to its separate consisting parts (for example, everything mustn’t be bounded only with solving financial problems displayed in one concrete period of time).

We can name such principles of providing restructuring, as transparency (necessity) of distributing expenses related with it, strengthening management of those banks, which are supported by the state, encouraging independent adaptation of the banks with the changed situation and others.

Following conditions of restructuring are also of great importance:

Success of reconstructing banking system is in close touch with how much clearly and knowing affair they formulate long-termed problems, industrial, structural and financial policy. For example, crediting enterprises, especially of large ones, is possible only in the case, if it is effective, if it leans upon clear state strategy. It is an important condition without which bank restructuring may not be successive. For successiveness of restructuring banking system it is the most necessary to recover and develop such conception, which will conform to the main economical goals. This conception may be oriented towards fulfillment of objects of operative character (recovering a mechanism of payment, solving other problems). It’s not real to try restructuring banking system, apart form reforming and restructuring the surrounding, in which bank functions. This request in the first place touched upon real sector of the economy and its active enterprises. Banking system is a kind of “built” and its successful restructuring is able by knowing what the basis is like, i.e. what kind of economy shall it support. Concrete requests and possibilities of real economy are the main criteria defining, what the banking system must be. Solving problems of real sector requests advantage economical policy of the state. In every case, real sector and banking system also needs concrete orienteer, which themselves appear to be additional stimuli of development. Restructuring of banking system must be outrun by curing of money and credit relations. Here curing of money relations must play leading role (privately avoiding barter and other cash-free “payments” in the economy). This needs providing activities stimulating investments in real sector of the economy, because it is impossible to come out of the economical crisis in other case. Restructuring banking system is impossible without staff revolution. Specialists of short-termed financial speculations must master either modern directions or give the way to those professionals, who can work with the real sector, have knowledge and ability in the part of estimating and managing investment and industrial risks. Restructuring banking system requests important correcting of legislative and normative base.

According to the mentioned above, we can separate some leading questions about restructuring banking system, on which there still is no satisfying answers.

What was the main reason of the situation, in which the banks appear? It’s thoughtful, that we must make choice among situation in real economy and peculiarities of bank activities. We consider it not to be correct to oppose two reasons to each other this way in our concrete conditions. What must turn into the basic concept of restructuring process (important consisting part)? Managers of central banks give different answers to this central question. There are such variants not conforming to each other: 1. financial curing of those problematic banks, which keep viability and perspectives of development; 2. rising the level of capitalization of the banks; 3. curing money relations; 4. recovering not as much of banks, but cash-credit relations; 5. creation functionally new banking system. What must the structure of banking system be, formation of which is purposeful? This is a principal problem. It is necessary to clear everything related with this. The banks must have an “assortment” if there is no other variant to be received. What must a conception of recovering and developing banking system be? Privately, following questions still remains to be doubtful (more in practice, then in theory): must we consider basic direction of curing banks their reorganization and readjustment, which concerns financial and other support and structural reforming?

Foreign experience of restructuring banking system. Bank reconstruction is not a unique problem. Banking crisis has been noticed almost in 70 countries during 20 years. A process of recovering balance has been continuing very difficultly everywhere and the state participated in them (though, scales of this participation were different in the different places and periods. Sometimes reasons of the crisis coincided with each other, sometimes they were specific. But forms of their solving coincided in many cases: stabilizing crediting, filling own capital of the banks, purchasing their assets (including passed debts) and others. As a rule, basic financial heaviness leaned upon the state directly, or in the way of financing specially founded agencies by it.

USA was a pioneer in the field of banking restructuring, where a system of guaranteed deposits and a special institute managing these deposits has been founded under the influence of the crisis in 1929-1933. This institution was a federal corporation insuring deposits (FCID).Next stage of restructuring banking sphere is related with the series of banking crisis took place in absolutely different countries during last 20 years.

In 1980-1991 1300 banks and 1400 borrowing-saving associations stopped existence in the USA. According to the different estimations, restructuring banking system cost 300-500 billion dollars (5% of the WIP). In 1995 banking crisis took place in Japan, in 1994-1995 – in France, in 1989-1990 – in Australia, in 1987-1989 – in Norway, in 1991 – in Sweden, in 1991-1993 – in Finland, in 1980-1982, 1900-1991 and 1995 – in Argentina, in 1990, 1994-1995 – in Brazil, in 1981-1982, 1990-1991 and 1995 – in Argentina and Mexico, in 1982-1984 – in Chile, in 1994-1995 – in India, in 1994 – in Indonesia, in 1985-1988 – in Malaysia, in 1981-1987 – in Philippines, in 1991-1995 – in Hungary, in 1990s – in Poland, Bulgaria, Lithuania, Latvia, Estonia and others. In some countries systemic crisis used to be repeated periodically. Some countries were able to avoid systemic basic crisis with the help of having insurance system, in the first place, at the expense of effective banking management and regulation.

Price of restructuring banking system is very different: 5% of WIP in the USA, 10 – in Hungary and Brazil, more, then 40 – in Chile and 55% – in Argentina.Central banks can support problematic banks in the crisis situation, especially in case of spoiling their current liquidity. In Venezuela, eight not solvent banks used special lines of liquidity for compensating money resources. Though, they were not able to cover borrowed sources in the future.

In other cases, crediting is an important step of central banks. They are supported during banking crisis and give them resources and terms for restructuring credit organizations. A long termed support provided by the central bank of Poland is a good example of it, when it purchased low profitable shares and long-termed bonds from the banks. Granting long-termed credits by the central bank sometimes depends on creation of complex plans of improving situation by the banks (list of stated activities and expected results).

Reducing the level of obligatory reserves (or increasing percentage payments on them) is another way of supporting banks, for example, part of obligatory reserves of deposits poste restates were set free for financing purchasing certificates of termed deposits of the institutions, which had been working by the program of restructuring banks.

They use special tax advantages very seldom in the process of bank restructuring. Notwithstanding this, Brazil used tax stimuli for encouraging confluence: “swallowed” bank could exclude then value of not active credits, “the sallower” received credits equaled to the distinction between the purchase and balance prices. Some countries use tax stimuli for shares and bonds issued during the realization of restructuring program.

They somehow make the rules of regulation and management under the conditions of restructuring banking system simple. They compensate this by creation such middle-termed system of regulation and management (in the crisis period), which foresees risks of banking activities more adequately.

To save the banks being in hard position actions provided by the state may support weakening the feeling of responsibility of the banks. In such conditions, the following is of great importance not to give rise to the weakening encouragement of irresponsible behavior of the banks in the future. It is considered, that it is necessary to grant a sum for making large profit and participants of the banks must be responsible for their obligations. They requested from the banks to discard a capital partially a conditions for making support in South Korea; the state obliged itself with bad debts of credit organizations in Mexico only in case if its participants used to make additional income; while bankrupting of credit organizations in Brazil and India, their participants were obliged to enter additional sum equal to the size of their initial entering in the nominal fund.

Herewith, participant of the banks are not always obliged with the responsibilities, for example, in case of the loss received from those credits, which are granted by banks by the state indications, it is necessary to range the size of responsibility, as the participants may not have possibility for solving problems in  the credit organization because of the not having transparency and of the organization calculations and other reasons.

They founded specialized institutions in the most part of the countries during restructuring banking system, which have been obliged with the problems of managing this process.

A government and central banks of many countries solved problems with bank crisis and restructured own banking system in different ways. Practice has shown up, that there is neither ideal form of restructuring, nor the universal strategy of normalizing situation in banking sector. Very often this or that action depends on concrete occasion. Notwithstanding this, we may separate total signs of successful programs, which have been realized abroad:

the fastest definition of the scales of problems, its recognition on the state level and readiness of the government for granting important financial resources for solving problems;

passing transparent, activities adequate to the essence of the problem, moving “bad” assets from the problematic banks off;

processing complex, transparent, operative program, its correct and successive development;

fulfillment of the procedures of banking management.

Chile. A complex of activities. Large scaled restructuring of banking system in Chile has started since 1984, when a central bank of the country started granting stabilizing credits for supporting liquidity of the banks and purchasing their not trustful credits or changing not active assets on liquidity. Deregistration of the bank debts took place in the way of turning creditors into the shareholders.

State became a guarantor for foreign debts of the private banks. Size of the debts transited to the central bank of Chile by the end of 1985 overcame whole capital of problematic banks 3 times and consisted 6 billion dollars (25% of WIP). About 60% of expiated credits were changed on its bonds by the central bank.

They involved straight state control in numbers of system forming banks of the country.

Recapitalization of the banks transited under the state control used to be realized in the way of additional issuing of the shares placed among small and middle investors. A state corporation of supporting development (CORFO) worked on this program.

Results. The banks practically fulfilled their obligations in the part of the deposits of physical and juridical persons with the help of the used activities. Though the quantity of national private banks was reduced from 22 to 15, but they were able to keep every large bank and improve their working by 1987. After 1996 every commercial bank of Chile has been considered to be competitionable.

The value. By the end of 80s, expenses provided on restructuring banking system of Chile consisted from 30 to 40% of the country WIP.

Mexico. A complex of activities. Restructuring of banking system in Mexico has been started in 1995 after devaluation of national currency and strengthening of financial situation, which followed devaluation. One of the nominal activities of Mexican bank (main bank of the country) was involving special calculation unit UDI (unidades de inversion), which was indexed with the level of prices. Whole assets of the banks were calculated by it, for avoiding devaluations of credit portfolios of the banks.

Basic organ working on restructuring banks was banking fund of protecting savings (FOBAPROA). During the process of readjustment it expiated securities from the bank and banks provided deposing of received resources in the Mexican bank.  They gave five years to the banks for expiating these papers. In other cases they were going to convert them into the shares of these banks and their realization at the market.

For solving problems with foreign debts of national banks central bank granted short-termed currency credits from these banks to them, who passed payment of these obligations. At the same time FOBADROA published doubtful assets of commercial banks. Herewith, the shareholders, in its turn, were obliged to enter sums equal to the half of resources granted by FOBAPROA. Banks were to enter resources received from this operation into the 10 year bonds.

They involved outer management of problematic banks. In some cases they granted their shares to the foreign banks. At the same time they supported bank debtors, provided restructuring of their liabilities.

Results. With the help of restructuring Mexico could avoid destroying of banking system. Deposits of the people practically were not defected. They kept trust of foreign investors in the banks of the country.

The value. Restructuring of banking system of Mexico costs 60-65 billion dollars (about 14.5% of national WIP).

Argentina. A complex of activities. State governmental organs in Argentina supported more trustful banks for solving problems of banking crisis. They used differenced method of approach. They separated banks into several groups:

I group – Middle and large banks having temporal problems of liquidity because of loosing clients. They granted them credits of central bank of Mexico and Banco de la nacio Argentina;

II group – small banks, which were to confluence with large, relatively healthier banks or were to be swallowed by them;

III group – small banks, which were at the edge of bankrupting. They stopped operations in these banks and they desired to readjust, sell and liquidate them;

IV group – 12-15 state banks owned by the administration of Argentinean provinces, which were to be privatized.

Expiation of “bad” debts was provided not by state agencies, but file largest commercial banks, which founded a special trust-fund in January 1995 together with the central bank. For compensating provided expenses they reduced a normative of reserved requests.

Results. A complex of anti-crisis activities in Argentina provided stabilization of banking system in one year. Though during this period position of foreign banks were significantly strengthened. There share in the total assets of banking system of the country drew up 42%.

The value. Expenses wasted on restructuring banking system of Argentina drew up 2.5-3.5% of the country WIP according to the various estimations.

Scandinavian countries. A complex of activities. notwithstanding distinctions in the reasons provoking crisis in every Scandinavian country, a conception of restructuring banking system leaned upon practically united conditions and principles of state support. They are:

founding a special state organ for overcoming banking crisis and providing state support avoiding mediator agencies; strengthening the role of prudential banking management and separating a special organ for its realization; overcoming deposits in relation with as physical, so juridical persons with the method of joint approach (“nobody looses”); supporting every bank in equal principles  and conditions and fluent transparency of information for entire society; total method of estimating situation in banks and displaying need of state support. This support a confluence with usage of “not popular” activities towards owners and managers, which supported them. These are such sanctions, as compensation of material loss at the expense of the property of guilty managers of the bank, devaluation of nominal capital until loosing whole resources (this activity in Norway was obligatory) and so on.

Programs of restructuring banking systems of these countries were being realized by optimal conformity of responsibilities and stimuli at every level including owners, organs of managing separate banks and regulating organs of whole system.

A value. Expenses in Sweden consisted 4.3% of WIP and 9.9% – in Finland.

Hungary. A complex of activities. Restructuring banking system has been continuing in two stages. At the first stage (1992-1995) the state used to transfer important sum of money in problematic and, in the first place, large banks. At the same time clearing of bank assets in the way of changing “bad” credits at state bond took place. They used state guarantees very actively. They tried to use special structure for centralized restructuring – capital investment and development bank of Hungary, but by 1995 the banks appeared again under the critical situation.

At the second stage (1995-1997) method of approach in relation with restructuring has been changed. They used state resources only for supporting those large state banks, which were to be privatized. Restructuring made them attractive for western investors.

Results. State share in the bank capital after first stage has been increased from 41.4% in 1991 till 69% in 1994. The result of second stage was increasing the share of foreign capital in the banking system of the country till 60% by 1997 (in 1996 – 48%, in 199535%, in 1991-1994 – 12-15%) and reduction of the share of state property till 20.66%. Share of “bad” debts in total sum of debts by 1993-1997 has been reduced from 13.2 till 1.2%. There was no occasion of selling deposits or refusing returning money to the debtors.

A value. Expenses provided at restructuring banking system of Hungary consisted from 12 till 18% of its WIP.

Estimating restructuring in Russia. Necessity of restructuring Russian banking system has become evident in the middle of the 90s. They began appropriate practical activities from August in 1998, which at the beginning had an operative anti crisis character. Herewith, they paid special attention in the first variant of restructuring program to the saving of many-profiled (“system forming”), interregional banks, but later they decided to gather middle and small banks.

Operative anti-crisis activities. In 1998-1999 bank of Russia (central bank) together with the government of the country provided operative activities for recovering ability of the bank, to be able to realize basic complex of service.

1.They provided three many-sided interbank clearing, which made it possible to register 30 billion rubles for recovering taxation system. In many regions this gave opportunity to the banks to release from the cargo of nonpayment wholly or partially.

2.They decided to move obligation of numbers of banks towards physical persons to the savings bank of Russia.

3.they used a mechanism of refinancing banks from September 1998 for supporting bank liquidity: they granted Lombard credits to the more, then 80 banks, overnight – to 34, one year credits to 15 on them; they changed normative of obligatory reserves (total 5% normative). They gave banks right of regulating obligatory reserves.

4.Changes took place in the requests towards banks. Central bank postponed usage of activities influencing in case of not consisting minimal normative of own capital of the banks for two years.

5.They involved special norms regulating activities of the selected circle of banks, in which there were: rule of calculating absolute sizes of economical normative, changing of calculating rules of some normative, rule of influencing activities. this gave the banks damaged by the crisis, though having good perspectives opportunity for leaning upon the quantity of their capital owned by the banks till the first of August 1998, or changing currency course of Ruble while taking risks.

6.They reduced limit of open currency positions, strengthened rule of calculating liquidity normative.

7.They reduced 10 times registration of payment and size of the price for opening branch.

8.They changed prohibition for paying entering in the nominal capital by foreign currency.

9.They involved requests towards registration of currency risks formed by balance-free operations and termed agreements. They managed activities of credit organizations working on the consolidated basis. They involved a rule of foreseeing bank risks in the banks.

10. They continued foreseeing licensing of those banks, which abolished law, had not satisfying financial situation, and had no perspectives of development.

At the same time, Bank of Russia and a government processed long-termed activities for solving basic problems of restructuring banking system. We can separate following:

Participating in processing those legislative acts, which are necessary for success of restructuring banking system;

Working of executive government with the local organs for the purpose of defining their possible participation in normalizing banking activities in the regions;

Participation in foundation of the Agency of restructuring banking system (ARBS) and collaboration of central bank with it in the fields of restructuring separate banks;

Creation regime of prior support for restructuring banks.

For the purpose of widening possibilities of postponing own capital by the banks:

They abolished prohibition on paying entering in the nominal capital of the banks and receiving subordination loans by the foreign capital;

They processed a rule of making entering in the nominal capital of the banks, when it takes place at the expense of converting bank obligations in the licenses of participating in the nominal capital;

They changed methods of approach towards requests of minimal size of own capital. These requests are still active for newly founded banks and are abolished for the active ones;

The involved the rule of paying nominal capital of the banks by the state securities.

By the end of 1999 Russian bank announced finishing of the first stage of restructuring banking system, which means, that this system recovered ability of providing basic complex of service, they kept viable kernel of the banks.

According to the Russian bank data, quantity of problematic banks by the first of January 2000 has been reduced from 480 till 199, and by the first of November – till 155. They widened the scales of bank activities, increased their assets. Whole capital of the active banks (except saving banks) has been increased per 2.7, though its size consisted only 46% towards the August of 1998, they reduced the number of those banks, normative of liquidity of which was less, then the obligatory level H3 per 70%.

The affair has been being interrupted by the absence of an evident economical policy of the government. The bank of Russia had no conception of recovering and developing banks, which would be received by the totality of banks and finally state role and the place of central bank, instruments to be used in relation with commercial banks, main goals and directions of working with restructuring. At the way of restructuring lack of resources still remained to be the main problem.

Bank of Russia and ARBS estimated possibilities of forming quite effective instrument, which would give them possibility for organizing, managing and transformation of banking system, also,, their possibilities and readiness in the wealth of the resources of bank refinancing and self-curing.

It is more dangerous, that bank of Russia considers liquidation of the banks to be prior way of working with problematic banks.

Herewith, liquidation of the banks loosing license is processing very slowly and is followed by large expense. To the mind of Bank Association of Russia (BAR), restructuring process is continuing slowly and not progressively. They consider, that bank of Russia has been able to define banks to be supported, discuss the programs of their curing and supporting realization of these programs. They have had enough time for avoiding not viable banks, but they haven’t done that. 40% of credit organizations of banking system have lost their licenses, and only 3/5 of them have been rubbed out of the registration book. Middle term of liquidation procedures is 2-3 years. Herewith, almost half of competition mass is worked for organizing competition management and current expenses. Creditors of the banks in such occasion loose their money forever. It seems that n case of liquidating bank only those of the interested persons win, who provides the procedure of liquidation and bankrupting.

Finally, it must be mentioned, that bank of Russia practically refused providing credit support to the banks for the purpose of providing stabilizing activities. The state refused to support practical programs of restructuring banking system as well. After these, the society suffers more and more loss.

They often call a process of transforming banking system in Russia “slowly progressive restructuring”. Truly, in fact it is brought to the individual and spontaneous “conformity” of the banks to the new request of the time. This makes it dangerous, that this will recover only earlier banking system – with the same weaknesses and defects.

Experience of overcoming banking crisis in the USA. US economy has been influenced by banking problems several times. One of them appeared during the period of large depression of 1929-1933. Thousand of bank deposits were devaluated because of ineffective operations of the banks, also not returning of the granted loans and total degradation of the economy. They closed hundreds of banks and provided confiscation of thousands of objects because of not returning of loans. US congress passed laws about founding federal corporations insuring deposits and also those insuring loans and savings. Except insuring, these corporations were obliged to research a lot of financial institutions for the purpose of finding defects in bank legislation and procedures and regulation of banking operations. This system has been working effectively during many years.

By the end of 1970 and beginning of 1980 banking industry of the USA was fluctuated by another financial catastrophe. To the analytical mind, reason of this was defective practice of granting doubtful credits, also, not transparency of the activities of regulating organs. Such organs that time were department of currency control, corporations mentioned above and institutions of Federal Reserve System. Exactly this time they destroyed reductions on percentage rates set for the banks on the attracted resources. They gave the banks right to pay any percents to the depositors (but higher, then market rates). That’s why rates in the 80s overcame annual 20%. It is evident, that the banks were to grant credits in higher percents (25% and more) for keeping profitableness.

Prices were being grown, especially those of immovable property (mostly because of expensive inner prices on oil). They abolished reductions to the borrower-saving associations on realization financing venture projects related with immovable property and speculative commercial operations (at whole US territory). Then they let the commercial banks grant credits on reconstruction projects and other risky operations related with immovable property (the government stimulated such operations), as in the country, so abroad. Herewith, for guaranteeing such credits, banks attracted deposits with very high percents. By the end of the 80s it was impossible to return such credits because of high percents and side spread of speculative character of the borrowers’ operations. Scales of bankrupting companies and private persons in those years were extreme. Finally, values of oil and immovable property have been significantly cheapened. Because of low level of banking management and under the conditions of deregulation reduced the number of hundreds of borrow-saving associations and financing resources of commercial banks, that they started using deposits attracted by the higher rates for payments on the old deposits and, they continued granting risky credits. By the end of 1988 both mentioned corporations were nearly bankrupted, as they were to give all their resources to the not solvent banks and associations in the way of insurance payment. The US congress was to provide banking reform again.

Under such conditions the congress passed the law about reforming, recovering obligations of financial institutions and compulsory payment (FIRREA). This law signed in 1989 became the most fluent banking law, had ever being passed in the USA. For its realization and according to it they founded Trust Corporation of returning resources (RTC), which has following goals:

Liquidation of a lot of bankrupted borrow-saving association; Provision maximal returning of resources and minimizing loss of the payers; Minimizing results of the crisis for immovable property and financial markets; Providing cheap apartments for the people having low and middle income.

The congress didn’t pass those parts of the legislative act, which foresaw financial support of the shareholders of problematic credit organizations and thus didn’t help massive restructuring of such organizations. Thus, Credit Corporation started playing functions of liquidations department and not those of restructuring agency.

Restructuring separate banks of the USA was realized only in exceptional occasions and even if the share-holders were ready to enter additional important resources into the capital and the creditors agreed to find compromised solution of obligations related with discounting. Herewith, they were to like restructuring plan. During whole history, they provided restructuring only of several banks in the USA.

During the six year of existence, Trust Company managed and liquidated 747 not solvent borrow-saving corporations (40% of such organizations). A corporation, usually, was able to find firm and easily managed bank, which would oblige itself with obligations existed at the deposits of the bankrupted organizations. According to the FIRREA law, corporation used to give such banks cash or liquid assets of same volume. When transition of deposits didn’t take place in such banks, the corporation according to the corporation normative paid the depositor guaranteed part of their deposits (not more, then 100 000 dollars). Middle rest on the depository account in the bankrupted organizations consisted 7500 dollars, total quantity of their depositors overcame 25 million people. Total balance value of the shares of these organizations was 451 billion dollars. By the end of the activities of RTC, in December in 1995, 95% of these assets were sold per price equal to the 87% of balance value, or the corporations was able to return 87 cents on every dollar.

RTC processed and involved special methods of marketing and realization of bank assets, most of which have been used widely in other countries, they are:

Securitization of commercial loans united in pulls (emission of turnover securities by provision); Wholesale of the rights of request on credit to the large market corporations; Concluding open auctions in the regions; Organization of conducting open tenders on the federal level; Conducting auctions and tenders by participation of foreign investors; Realization of immovable property by the scheme of financing agreement; Creation data base of the objects of immovable property managed by RTC (the base became available for the interested buyers allover the world).

RTC administration knew, that mission of this corporation would be hard to be fulfilled, without having correctly planned strategy, strictly processed methodology and procedures, also without strict control. The most difficult problem was conforming conditions of selling assets, covering loans and restructuring, also stating responsibilities and limits of wasting RTV resources.

They found way out by setting limits and wide distributing obligations. The procedures of transiting obligations to the staff workers foresaw preparing statement on every asset.

As a rule, main reason of banking problems is bad management. Inability of the setting good inner control and strict keeping of the procedures finally brought the bank to the strengthening problems and bankrupting. Unprofessional management may give rise to the mistakes in managing risks and liquidity. When these questions are guaranteed by the managers and administration of the banks, this is followed by problematic assets and problematic banks. Exactly this took place in the USA in 1970-80s. There were too many banks and they granted huge credits, and this was absolutely incorrect. Weak organization of selecting borrowers by the banks, entering of payments and controlling financial position of the borrowers and also weak management showed up.  

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The Bank of England started pumping £75 billion into our financial system last month in an attempt to resuscitate our economy and to provide the banks with liquid money to start lending again for mortgages, remortgages, personal loans, car finance, etc. The Bank of England base rate currently stands at ½% and this Thursday their monetary committee are expected to decide whether the base rate stays where it is or falls to zero percent.  It is being reported that some of the banks that the government bailed-out with taxpayers’ money are now charging taxpayers up to 21% interest for some personal loans.

Homeowners have seen the value of their properties nose-dive, savers have seen their income from their savings diminish, unemployment has risen to over two million, the cost of living has risen sharply over the last year and now some of the very banks that were saved from going bust by the taxpayers are now charging interest rates that are astronomical. It seems that a personal loan has a higher interest rate than a credit card. Bizarre!

The Daily express reported that one of their investigators was offered an interest rate of 21% for a £2,000 personal loan over three years by the Nat west Bank and a similar 20.9% by the Lloyds TSB.  It seems that the Nat West spokeswoman said: “All loan applications are assessed on the customers personal circumstances and information provided.”

As a provider of money saving advice, I can understand banks and finance institutes charging high interest rates to clients that have a less than perfect credit report where they have missed payments, fallen into arrears, been issued with defaults and county court judgements. But it looks like these banks were charging these interest rates to everyone. Banks must be allowed to judge risk and charge accordingly for the risk.

These extortionate interest rates do fly in the face of the government who has bailed out these banks to restore confidence in the banking system and to get the banks to start lending money. The banks look to have chosen to continue their greed by extorting their customers further in the pursuit of profit and money.

Financial Markets (ECON 252) Behavioral Finance is a relatively recent revolution in finance that applies insights from all of the social sciences to finance. New decision-making models incorporate psychology and sociology, among other disciplines, to explain economic and financial phenomenon, such as erratic stock price variations. Psychological patterns such as overconfidence and perceived kinks in the value function seem to impact financial decision-making, but are not included in classical theories such as the Expected Utility Theory. Kahneman and Tversky’s Prospect Theory addresses such issues and sheds light on irrational deviations from traditional decision-making models. Complete course materials are available at the Open Yale Courses website: open.yale.edu This course was recorded in Spring 2008.

Real estate investment offers positive cash flow and tax benefits. However, much like any other investment niche, real estate is dependent on intricate market trends that must not be overlooked, lest the investor may suffer a significant loss.

Surprisingly, several newbie investors are willing to part with their hard earned money, without carrying out a preliminary research of their investment. Instead of relying on a meticulous analysis, they bank on intuitions and traditional trends. But before you risk your investment, do heed the following real estate investing advice, in order to ensure significant returns on your property investment.

a) Verify the seller’s credentials – Newbie investors find a lucrative property but don’t bother verifying the seller’s credentials, since they are in a hurry to bag the property. But I suggest they hold their horses. They should verify certain aspects, including rent payment records, taxes, and other possible expenses.

b) Avoid negative cash flow – Another real estate investing advice is to choose a property that does not eat away your working capital on a regular basis. There is no point buying a property that requires more money for its upkeep relative to the revenue it generates for you. You might be forced to sell such an asset prior to the realization of any benefits of ownership.

c) Original tenants can provide the much needed information – Ask the tenants if they are troubled by pest infestation, lack of basic amenities, or some other recurring problem. You surely don’t want to buy a property that requires an awful lot of repair, and even if you do, you must know the problems upfront.

d) Look for an insurance cover – A crucial real estate investing advice is that you must have adequate insurance coverage for your newly bought property. Insurance will provide the much needed veil to protect your personal assets against some legal action.

e) You must charge fair rents – No expense hurts more than what’s incurred in the upkeep of a vacant property. Therefore, charge fair rents to ensure that your tenants stick with you for as long as you desire. Moreover, you must also ensure that the chosen tenants are not defaulters. Verify their credentials, talk to their previous landlords, and check their credit history. A preliminary research can save an awful lot of trouble later.

f) Maintain a certain degree of frugality until you have a healthy source of income – Once you have closed a profitable deal, you must avert from going on an extravagant shopping spree. Instead re-invest your profit towards another property payment until you attain a significant positive cash flow on a regular basis.

On the whole, real estate investing can be an extremely profitable investment niche. But you must have a good grasp of what the procedure entails, and must not leave any stone unturned. Just adhere to the real estate investing advice put forth above, and you shall be on your way to become a professional real estate investor.

Copyright © 2006 Joel Teo. All rights reserved.

Dave Ramsey speaks out on Debt and Tax Deductions. Check out more personal finance videos and Walk Threws about Term Life Insurance, Whole Life Insurance, Debt, Investing, and Financial Planning with Suze Orman, Dave Ramsey, and Greg Olney here at www.youtube.com Suze Orman, Dave Ramsey, Term Life Insurance, Whole Life Insurance, Cash Value, Universal Life Insurance, Variable Life Insurance, Person Finance, Money Management, Life Insurance Tips, Life Insurance Basics, Personal Finance 101, Basics and Tips. Suze Orman, Dave Ramsey, Personal Finance 101, Debt, Loans, Tax Deduction, Money Management, Debt Elimination

Introduction to the income statement of a bank (and to income statements in general).