Tabl. 6. Goldsmiths as bankers
| Assets | Liabilities | |
| 1. Old-fashioned goldsmith 2. Gold lender 3. Deposit lender: Step 1 4. Deposit lender: Step 2 | Gold $100 Gold $90+loan $10 Gold $100+loan $10 Gold $90+loan $10 | Deposits $100 Deposits $100 Deposits $110 Deposits $100 |
The first row shows what the goldsmith did before he made this loan. He had a hundred dollars of gold, which he owed to the people who had deposited it with him, so his assets and liabilities were the same. But when he lent, say, $10 of gold to the firm, he actually had only $90 of gold in his vault plus the value of his loan. His assets still equalled his liabilities, but he was going to get some interest.
It so happened that the firm, that took out the loan, didn't really want to carry that $10 of gold around, so it asked the goldsmith if, instead of actually taking the gold, it could be given a deposit. The third row of Tabl. 6 shows what happened then. Although the goldsmith's assets and liabilities were the same, but were then worth $110, not $100. When the firm wrote a cheque for $10, and that person came in to collect his $10 worth of gold, the goldsmith's assets failed, but so did his liabilities (the fourth row of the table). The important point to notice here is that it made no difference to the goldsmith whether his initial loan was in actual gold or in a form of a deposit.
Now let's turn to the question of reserves. Reserves are the amount of gold that is immediately available in the vault to meet depositors' demands. People originally deposited $100 of gold with the goldsmith. The goldsmith lent $10, leaving himself with $90. As a banker he was relying on the fact that not everyone would want their gold back at the same time. If they had done, he couldn't have paid out. His reserves of $90 were not enough.
The goldsmith in the table has a 100% reserve ratio. The reserve ratio is the ratio of reserves to deposits. Once he has made his loan, he has a 90% deposit ratio. This is a small risk with a small profit. How much dare he lend out in order to make a profit through his interest charges? What are the risks involved^ Suppose the goldsmith took too much of a risk. He lent 80% of the gold he had. This panicked people. They doubted he could pay them all back, he was bound to lose some of the gold he had lent, so they rushed to get their gold back before it was too late. That was what we would now call a run on the bank, a financial panic. And the financial panic leads to exactly what people fear. the bank cannot pay them, goes bankrupt, and they go bankrupt as well.
VOCABULARY NOTES
rare –редкий
fines – штрафы
to measure their value accurately – точно измерить их стоимость (ценность)
to divide into a wide range of amounts –разделить на много частей (маленьких или больших)
precious metals –драгоценные металлы
gold bullion –золотой слиток
to deposit with –хранить, вкладывать
'a goldsmith –золотых дел мастер
worked with gold for jewellery –делал золотые украшения
a guarded vault –охраняемый подвал, хранилище
to fetch –приносить, доставать
to transfer –переводить, передавать
once these letters or cheques, became acceptable as a way of paying for goods –как только (когда) эти письма, или чеки, стали приниматься при оплате товаров
their money holdings –деньги, которые им принадлежали, которыми они владели
a bank loan –банковская ссуда, заем
a little interest –небольшой процент
the goldsmith was short of gold – у мастера не было достаточно золота
to reckon –полагать, считать
at any rate – во всяком случае
a transaction –сделка
to owe –быть должным
assets and liabilities –активы и пассивы
the value of his loan –стоимость ссуды, которую он дал
to equal –равняться, быть равным
the firm didn't really want to carry that gold around, so it asked the goldsmith
if, instead of actually taking the gold, it could be given a deposit –фирма не хотела держать золото при себе (носить золото с собой) и вместо того, чтобы на самом деле его забрать, попросила мастера принять это золото на хранение в виде вклада
(they) were worth $110 –их стоимость составляла, они оценивались (имели ценность) в 110 долларов
to write (syn.to draw, to issue, to make out) a cheque –выписать чек
his assets failed –зд. его активы снизились
to fail –(о банках) обанкротиться
initial loan –первоначальная ссуда
reserves –резервы
the amount of gold that is immediately available in the vault –запасы (количество) золота, которое всегда находится (и может быть немедленно получено) в хранилище банка
depositors' demands –требования вкладчиков
leaving himself with $90 –оставив себе только 90 долларов
to rely on –рассчитывать, надеяться на что-либо
the reserve ratio –резервная норма
dare –осмеливаться
to make a profit through his interest charges –получить прибыль за счет платежа процентов
What are the risks involved? –Чем он рискует?
to panic (panicked) –пугать, приводить в панику to doubt –сомневаться
he was bound to lose some of the gold –он непременно должен был потерять часть золота
a run on the bank –натиск вкладчиков на банк
the financial panic –финансовая паника
to fear –опасаться, страшиться
to go bankrupt –обанкротиться
Assignments
I. Suggest the Russian equivalents
they wanted their gold to pay for some things with; two developments turned these goldsmiths into bankers; it transferred some of the gold they had...to the seller; the goldsmith was short of gold; the risks involved; to make a profit through his interest charges; a goldsmith took too much of a risk; he was bound to lose some of the gold
II. Fill in the gaps with the words and expressions from the text
1. In the past most societies used different objects as __ to buy __,topay for __.
2. Some of these were valuable because they were __, others- because they __.
3. People used gold, __, as money.
4. People __ their gold with __, people who __ also had __ to keep gold safe in.
5. When people wanted some of their gold to __, they went and __ it from the goldsmith.
6. People found it a lot easier __ the seller __, that we would nowadays call __, than it was __ some gold and then __ to him.
7. Once these letters or cheques, became __ as a way of __ for goods, people felt that the gold they __ with the goldsmith, was just __ as gold in their own __.
8. People started to say that their __ were what they __ plus their __.
9. Goldsmiths realized they had a great deal of__ lying in their vaults __.
10. This development was actually of__ than the first.
11. At the moment of his first loan the goldsmith __, it wasn't actually __ gold, but he __ it was __ that everyone who __ gold with him would want it back __.
12. The third row shows that although the goldsmith's __ were the same, but__ $110, not $100.
13. When the firm __ for $10, and that person came in __ his $10 worth of gold, the goldsmith's __.
14. It made __ to the goldsmith whether his __ was in __ or in a form of__.
15. Reserves arc the amount of gold that is __ to meet __.
16. As a banker he __ the fact that __ would want their gold __ at the same time.
17. The reserve ratio is the ratio of __ to __.
18. How much __ he lend out in order to __ through __?
19. People __ he could pay them all back, he __ to lose some of the gold he had lent, so they __ to get their gold back before __.
20. The __ or __, leads to exactly what people __: the bank cannot __ them, __, and they __ as well.
III. Find in the text English equivalents for the following
использовать золото (слитки) в качестве денег; отдавать на хранение;
золотых дел мастер; (банковское) хранилище (охраняемый подвал); забирать у мастера; стали приниматься в качестве платежа за товары; неиспользуемое золото; оставив себе только 90 долларов; простая сделка; небольшой риск с небольшой прибылью; расплатиться; обанкротиться (2 вар.); финансовая паника; натиск вкладчиков на банк
IV. Answer the questions
1. What did people use as money? Give some examples.
2. What were the reasons that made some societies start using precious metals as money?
3. Who were the original bankers? Where did they keep gold?
4. What are the 2 developments that turned the goldsmiths into bankers? Which of them is of greater importance?
5. What kind of letter did people give to the seller as a payment? What's it called nowadays?
6. Why did people start to say that their money holdings were what they had with them plus their money deposits?
7. How was the system of deposits started?
8. What did a firm ask a goldsmith for? Did he agree to it? On what terms?
9. Explain the information in the first and in the second rows of the table.
10. What did the firm want to do with the gold it had borrowed from the goldsmith? What would we call a deposit today?
11. Explain the information in the third and the fourth rows of the table.
12. What was the goldsmith relying on as a banker?
13. What is reserves and a reserve ratio? What is the goldsmith's reserve ratio after making the loan?
14. Why is it said that the goldsmith took too much of a risk? How much did he lend? What did people do? What is it called nowadays?
V. Translate into English using all the active possible
1. Когда царствует процветание, можно ожидать, что банки расширят кредит до максимума своих возможностей. Наоборот, когда на экономическом горизонте появляются тучи депрессии, банкиры поспешно берут назад свои предложения о займах, стремясь к безопасной ликвидности, даже если для этого потребуется пожертвовать потенциальным доходом от процента. Банкиры могут опасаться крупномасштабных изъятий вкладов паникующим населением и сомневаться в способности заемщиков выплатить ссуду.
MODERN BANKING (СОВРЕМЕННАЯ БАНКОВСКАЯ СИСТЕМА)
The goldsmith bankers were an early example of a financial intermediary.
A financial intermediary is an institution that specializes in bringing lenders and borrowers together.
A commercial bank borrows money from the public, crediting them with a deposit. The deposit is a liability of the bank. It is money owed to depositors. In turn the bank lends money to firms, households or governments wishing to borrow.
Banks are not the only financial intennediaries. Insurance companies, pension funds, and building societies also take in money in order to relend it. The crucial feature of banks is that some of their liabilities are used as a means of payment, and are therefore part of the money stock.
Commercial banks are financial intermediaries with a government licence to make loans and issue deposits, including deposits against, which cheques can be written.
Let's start by looking at the present-day UK banking system. Although the details vary from country to country, the general principle is much the same everywhere.
In the UK, the commercial banking system comprises about 600 registered banks, the National Girobank operating through post offices, and a dozen trustee saving banks. Much the most important single group is the London clearing banks. The clearing banks are so named because they have a central clearing house for handling payments by cheque.
A clearing system is a set of arrangements in which debts between banks are settled by adding up all the transactions in a given period and paying only the net amounts needed to balance inter-bank accounts.
Suppose you bank with Barclays but visit a supermarket that banks with Lloyds. To pay for your shopping you write a cheque against your deposit at Barclays. The supermarket pays this cheque into its account at Lloyds. In turn, Lloyds presents the cheque to Barclays, which will credit Lloyds' account at Barclays and debit your account at Barclays by an equivalent amount. Because you purchased goods from a supermarket using a different bank, a transfer of funds between the two banks is required. Crediting or debiting one bank's account at another bank is the simplest way to achieve this.
However on the same day someone else is probably writing a cheque on a Lloyds' deposit account to pay for some stereo equipment from a shop banking with Barclays. The stereo shop pays the cheque into its Barclays' account, increasing its deposit. Barclays then pays the cheque into its account at Lloyds where this person's account is simultaneously debited. Now the transfer flows from Lloyds to Barclays.
Although in both cases the cheque writer's account is debited and the cheque recipient's account is credited, it does not make sense for the two banks to make two separate inter-bank transactions between themselves. The clearing system calculates the net flows between the member clearing banks and these are the settlements that they make between themselves. Thus the system of clearing cheques represents another way society reduces the costs of making transactions.
The Balance Sheet of the London Clearing Banks. Балансовый отчет лондонских клиринговых банков
Tabl. 7 shows the balance sheet of the London clearing banks. Although more complex, it is not fundamentally different from the balance sheet of the goldsmith-banker shown in Таbl 6. We'll begin by discussing the asset side of the balance sheet.