Question

Note: No handwriting, please

1. Define traditional banking and describe the causes of its demise.
2. Explore different competitors to traditional banking, like credit unions and online banking - what do they use to compete with traditional banking institutions?
3. Explain why the government can't simply legislate bad things out of existence.
4. Explain how the government regulators made the Savings and Loan Crisis worse, and exacerbated the Great Depression.

Answer 1

1. Traditional Banking simply accept deposits from people and lend money to individual, coporate, other froms of buisness and charges interest on it. And difference between the interest charge on lending and interest rate on deposits is the profit for the bank. One point kept in mind that the biggest expense of any bank is interests paid on the deposit. This is main function of traditional banking.

Some facilities of traditional banking are:

• Opening bank account
• Providing Bank Passbook
• Cheque book
• Fixed deposits
• Home loan, personal loan, business loan etc
• Demand Draft (DD), Travelers Cheques

These are some facilities are provided by traditional banking. Now what let down the traditional banking? Below the reason are provided why traditional banking is demise.

The traditional banking offers the basic banking services and traditional banking are also earning income most from the interest they charge on the loan given by them. As you may that loans may be default (i.e borrower is not able to repay principal or interest of the loan taken by him/her.) So the earning of the banks are at very risky (means they have to bear risk of credit default). And apart from this, the service which are provided by traditional bank are not sufficient for growth of economy as well as banking industry. So therefore traditional banking industy has to change its way of business or to imporve their business portfolio or expand services.

Then the modern banking comes which is more oriented fee based income. What is the meaning of fee based income? Modern banking provides various services like Debit card, ATM (Automated Teller Machine) card, Credit card, Electronic Remittances (for internationally and domestically), Demat services, Portfolio management services (PMS), Bancassurance, Palying vital role in financial inclusion, Tax related services, ECS (Electronic Clearing System), International trade finance services (Letter of credit, forex card, Bank guarantee etc). And for each kind of serivce bank charges minimal amount which generates revenue for banking industry. So apart from traditional banking services, modern banking provides wide range of serivces which gives benefit to all (Bank, customers, economy). And now a days due internet facilities banking provides services like internet banking, mobile banking. By these serivces you can enjoy banking services at your home.

So therefore earlier banking which provides basic banking service nowdays not able to compete from modern banking. Also I would like to mention that modern banking also facing challenges from Fin-tech development now a days. So that's why traditional banking are demise.

Summary

Traditional banking which provides only basic baning services (accepting deposit, lending money etc) now the modern banking which provides one stop sloution (Universal banking) and earning fee based income let down the traditional banking.