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BLC Admin Tlm724 News & Comments 5-2-16 Part 1 of 2
Within the Iraqi Financial Economics: Banking Business with the overall provision in light of the critical dystopia
Date: 05/02/2016 D.mark de Weaver
What the Iraqi reports of the Institute for Regional and International Studies ( IIR )?
Iraqi provide reports of the Institute for Regional and International Studies (IIR) analysis on the ground of the most pressing issues in Iraq. It aims to supplement and expert research and analysis Court on Iraq policy decision
These reports unique to being manufactured in Iraq, based on field work in the country as well as open Iraqi reports of the Institute for Regional and International Studies, is the brainchild of both "Ahmed Ali" and "Christine Van Den Torn" and both have years of experience in research and writing about Iraq and the Kurdistan region in Iraq.
As is the case in many economies that are in the case of an existing conflict or post Banking and finance is not available to everyone with the exception of major companies that bank financing is limited to only a short drag facilities.
While checks are often used between companies within the same city, and controlled transfer of money through money transfer is paper or through money transfer payment system companies. Most Iraqi families do not have a bank account, people who have financial savings keep them mostly in bundles of cash in US currency (dollar) in special cabinets.
That case put huge restrictions on the financial system because they practically exclude the role of the banking system with partial reserve.
The business model for the Iraqi institutions are quite different from those of banks in developed countries, normally reserved for a small amount of the deposit base as reserves in the form of money saved in the bank or in the form of a reserve account at the Central Bank, and most of the money that has been deposited easy withdrawn, because depositors money is likely to withdraw small amounts of this money at any time.
The private banks and money transfer companies that serve the cash economy in Iraq is not able to work the same banks in developed countries the way. Civil banks are subject to the withdrawal of huge amounts of money quantity and unexpected depositors , whether individually or collectively,
and the money transfer companies are not receiving financial deposits at all, and as a result, the financial system has become in Iraq to achieve the bank reserve schemes is miserable, those schemes proposed by scientists that Austrian economy as a means to eliminate the investment cycles of the boom and bust " 1 .
This is similar to a large extent , " the perfect model of the financial system in a free society" proposed by Huerta de Soto , where the deposit reserve support 100%, and the banking system is free (irregular) and the freedom to choose the currency.
While all privately owned banks in Iraq does not possess the proportion percent percent of their deposits of cash, and those deposits listed on the Iraq Stock Exchange (ISX) were cash deposits ratio which combined stands at 97% at the end of 2014, a very high figure compared with their counterparts from the states.
At the system level, the total transfer of funds and money held in private lockers companies equivalent to the banking system with the overall reserve in which there are different entities responsible for the functions of booking and payment.
The money transfer companies is an example of the ideal of the model (free banking system) due to the lack of systems to interfere in their field and influenced "Karma" on their discipline at work dramatically. Finally, the dollarization (the Iraqi currency is converted to the US dollar) partial economy process that allows great freedom for Iraqis in handling currency.
It is important implications for the deposit reserve percent percent is that demand deposits are not available to fund the loans, which must be covered by the central bank. For the Austrians, this is undesirable because it precludes the possibility that the banks in money creation that will investment boom fueled by credit, and in fact this is not a problem in Iraq.
The events in Iraq , which led to increased investment ratio is the result of high oil prices and not the result of excess credit. " 2
In reality it is not so, as Iraqis complain sometimes that of the overall reserve accounts or cupboards are not available to the economy, "real." Regardless of the form it takes money, it does not "flow" in material goods. As trade and investment Tqoman not change the way the transfer of funds into commodities, as they are simply converted from buyers to sellers. Cash plays the same role in the payments system, regardless of whether they are available or not available to be pulled. It does not stand idle all.
What makes the reality of Iraq bitter is not a monetary utopia proposed by Huerta de Soto and other Austrian economists that policy, it is the absence of the rule of law, the absence of effective control over the banks lead to uncertainty depositors money that their money in a safe place, which makes it difficult for the banks to be a protector of money its customers.
In a country where the armed robbery of the longer daily events has led to a rise in related guarding the money transfer transaction costs. Without reliable implementation of the contracts it is impossible for financial intermediation to take place through the Consolidated Investment Funds which Austrians claim that it is possible to be a substitute for bank loans in the destruction of the reserve system. Instead, it must average funding and long The best that can be achieved is through the "special orders" in the absence of reliable government department.
As for the remainder of this report, it shows how the banking business with the comprehensive provision has become a basic rule in the private sector in Iraq and explore some of the implications of the policy The first part explains why mile Iraqi private sector banks to hold higher levels of reserves to deposits than their counterparts from developed countries despite the absence of any formal conditions to support the overall reserve.
The second part of it shows the possibility that companies will allow the transfer of funds to the private sector who have the money to control the role played by the deposits usually in the payments system, allowing for those who keep their money in private that serve as a kind of "domestic reserve stores." Part III looks at the central bank and explain the reason for the lack of effectiveness of traditional monetary policy and prudential oversight, and anti Finally, Part IV concludes with a "second
1. The provision of comprehensive banking business as a last resort 3
While the CBI asked (CIB) that private banks dominate the deposits as a reserve by 15%, but most of them are tightly controlled and deposits by 50%. Unlike foreign banks, the cash and equivalent, not loans, is one of the largest private Iraqi banks' assets as if it is an achievement for private banks that it has become one of the most liquid financial institutions in the world.
Valennzer to the six banks listed on the Iraq Stock Exchange (ISX) as the senior shares holders were foreign banks and to the end of 2014 (see Figure 1). Cash deposits of 9% ranged to 28% of the bank sponsor in exchange for 49% to 121% of the branches of the bank and the financial assets covering 86% of the deposit. As for the banks mentioned and dominant locally, the figure was even higher for up to 105%.
Figure 1. ratios of cash deposits in the banks listed on the Iraq Stock Exchange to foreign banks sponsoring at year-end 2014, from left to right: Burgan Bank (Kuwait-based), Ahli United Bank) based in Bahrain (, bank HSBC, Qatar National Bank, Capital Bank) based in Jordan (and the National Bank of Kuwait. (Note that the HSBC bank had sold the entire stake at a later date in favor of the Bank of Dar es Salaam).
Bank managers will tell you in Iraq that they are going to need the money to meet the needs huge unexpected withdrawals by customers who deposited money. But this applies to all banks in the world. Why should money lenders Iraqis to have financial liquidity is greater than their counterparts in other countries?
That their behavior does not seem so strange when you consider the fact that Iraq lacks the work of the inter He can usually banks experiencing financial liquidity borrowing from another bank has a surplus of money. As long as the bonds provided by customer do not change, Vshab money from the bank (a) turns into a deposit in the bank (b) ensuring that the amount requested from the bank (a) can easily be available in the short term.
In Iraq, one of the banks' exposure to the shortage of liquidity would have theoretically to borrow from the Central Bank of Iraq. This is even more disturbing than the possibility of borrowing from another commercial bank alternative, however, it did not happen on the ground. When you feel the institutions in developed countries, it will be in trouble, it will be still able to reach the money in the inter
However, the central bank is the lender and the organizer of the movement of other banks alike, as it will not provide financial liquidity to those who pay the largest amount regardless of the circumstances, and this is especially true for the Central Bank of Iraq, which lacks the powerful forces of the control of the monetary authorities in the states other. That's what makes it easy to be exploited by reputable commercial banks.
Of course, all of the raises the question: did no market between banks in the first place? Is not that the central bank is capable of putting a system that allows banks to provide short It seems that the problem is partly a result of the dominant role of the government to the banks in the state, which together account for the vast majority of the deposits on the scope of the system.
Without their participation, the idea of inter There would be no guarantee that at the end of a specific day not to private banks combined fiscal deficit is exposed while the state In a market where private banks only participate in it, there may be a bank has excess funds, but it will not be enough to meet the demand of those banks that suffered financial deficits.
So why government Unfortunately, this will be a good thing, a move into similar to companies owned by the state in general, these banks can always count on being bailed out if exposed to problems. This means that the inter It will be the inevitable result of an increase in non
There could be a possibility that the amounts that have been withdrawn in a given day will return to the banking system in the form of new deposits, it has kept the money at home instead. That may be true, for example, which through the control of the organization of the Islamic State crisis in the north
The need to keep money in the bank lockers and reserves of central banks, of course, indicates that the main work in the private banks can not be lending money medium or long Instead, their activities are limited largely to foreign exchange and transfer of funds and the provision of an overdraft facility and letters of credit for importers and performance bonds for building contractors. As economists Austrians imagined case of destruction Reserve banks, the loans rarely exceed the shareholders' rights.
In most countries, the bank that holds more than half of its deposits in cash it is considered a bank with a very bad management. In Iraq, it is quite the opposite, a few banks that have the cash they are at risk of failure. An example of this is the Warka Bank, one of the worst cases of bank failures in Iraq in recent years.
The Warka Bank occupied in the past, first in terms of total assets, but the CBI has seized it was canceled from the list of joint venture banks in the stock market in 2011. The lost cash deposits, which amounted to 79% in 2009 to 12% at the end of the second quarter decreased for the year 2010 which is not alarming level in accordance with international standards, but it is something fatal in Iraq and by the second quarter of 2011, when he published another bank's financial statements, the percentage dropped to only 1%.
2 - transfer of funds and "domestic companies reserve "
Play money transfer companies, known as remittances in Arabic, a major role in the transfer of funds between Iraqi and international cities. Because their profits depend entirely through remittances and foreign exchange trading. Some banks are rarely used, and keep most or all of their money in the form of banknotes. Others have greater relationships with local financial institutions, as well as those who deal with the major shareholders who bind them personal connections.
These companies tend to exist in popular markets, which often occupy modest buildings markets and contain those offices on the table and money counting machine, and a couple of chairs and a table. While these offices are modest show, but they operate largely outside the formal financial system, they are involved in a very complex global financial network similar to a large extent with those used for the treatment of commercial banking transactions.
For example, the average daily trading volume in the medium
Contrary to what many think, the process of converting the money does not include an actual transfer of money. When a sender to give money to a company transforming financial aid (a), the (a) to send instructions to a company in another place, Flandaoha (b), which will ask them to provide money to the receiver, who would have to carry some kind of identification and password .
Therefore, the money never moves it is a simple process that will end the company (a) will have an increase in the cash balance of the company and (b) will have a lack of balance.
Studies focusing on international financial transfers such as offices Bacz (2003) and Schaefer (2008) and Maembo (2013) on the role of the actual transfer of funds Goods negotiable or transfer funds between bank deposits to influence the settlements between the transfer of funds or companies.
He says Mbrana in popular markets in Sulaimaniya, said that the majority of the outstanding balances have not been resolved in this way, but through the book
In the simplest case, the lack of balance between the sender and the receiver may be reflected through the transfer of funds at a later date from the company (b) to the company (a). If the company (b) the transfer of funds to the company (a) the fiscal deficit of the (b) can be terminated when it receives the money from the client, while the surplus (a) may disappear when it pays the money to the person who will receive the money.
Of course, incoming and outgoing transfers rarely compensate for each other in this way. In the more realistic case, the settlement between money transfer companies include many parties. Let us assume that (b) the amount of debt of $ 25 (a) is the sum of net transfers of (b) to (a).
At the same time, perhaps the company (o) the debt amount of $ 15 (b) and the company (r) by the religion of the amount $ 10 from (b), and (o) the debt amount of $ 8 from (r), and (a ) by Dean Mekdrah of $ 25 (o) (see Figure 2). The settlement between these companies could be as follows:
1. cancel the company (a) its debt of $ 25 with (b).
2. cancel the company (b) debt of $ 15 and $ 10 with (o) and (p).
3. cancel the company's (r) debt of $ 8 with (Q).
4. cancel the company (o) of its debt with the $ 25 (a).