In the prevailing world, commercial bank management systems are more or less similar in principle. Dissimilarities exist in the scope of commercial banking activities in different countries.
Communist countries’ commercial banking systems are completely different. Capitalist countries differ in respect of free-market economic banking activities.
From this perspective, we can divide the major commercial banking systems in different countries into the following groups:
- Anglo-American Banking System
- German Universal Banking System
- Japanese Main Banking System
- Indian Lead Banking System
These are briefly introduced below:
1) Anglo-American Banking System
This system is prevalent in most countries in the world. There are differences between commercial banking and investment banking. Commercial banks cannot operate investment banking activities.
Separate investment banks or merchant banks are established in these countries for the operation of investment banking activities. Besides, this system does not allow the transactions of shares or securities for different clients’ accounts.
However, this practice does not apply to Indian banks. Commercial banks cannot be the owner or directors of other corporate houses by purchasing sufficient shares. The relationship between commercial banks and corporate houses will be a creditor and client relationship: not the owner relationship.
2) German Universal Banking System
This system is prevalent only in Germany. There is no difference between commercial banking and investment banking in this system. Commercial banks can operate any business activity.
Commercial banks can buy up to 40% shares of corporate firms and participate in the firm’s ownership. In this system, a commercial bank can monitor any firm in two ways: as a creditor and owner/director. Commercial banks participate in determining fiscal policy along with investments.
So. this type of commercial banking system is called a universal banking system or relationship banking.
3) Japanese Main Banking System
Japanese Main Banking System is closely related to relationship banking. There are differences between investment banking and commercial banking in this system, but commercial banks have no restriction to participate in the ownership of the corporate firm. This is the hybrid form of the above two systems.
That is. Banks cannot participate in investment banking activities. The bank can buy a 5% share of any company and participate in the ownership. In this system, banks can monitor the companies as owners and creditors.
Banks can influence the formulation of the financial and investment policies of these firms. Banks also can undertake management responsibility temporarily in the time of financial crisis of these firms.
That is, Banks maintain a long-term relationship with the client firms.
Only one controller bank is present in the main banking system. A company’s main bank is the bank that gives the highest loan (10–20%) to that company and also becomes the principal shareholder (5%) of that company. Besides, all the banking transactions of that company are performed through this bank.
4) Indian Lead banking system
Indian Lead banking system was developed in India by the end of 1960. Every lead bank performs extra responsibilities with the existing commercial banking system.
The purposes of this system are to increase the rate of savings, equitable allocation of financial resources based on some criteria to various sectors of the economy, and increase investment efficiency.