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Task 1. Read the text and say if the statements given below it are true or false.

During the past 15 years or so international bank regulation has been concerned mostly with the ability of the system to sustain shocks, such as stock market crash, a foreign-exchange crisis or a terrorist attack. To guard against systemic shocks, regulators require banks to carry a cushion of regulatory capital, so banks have higher costs than do more lightly regulated financial companies. But they have privileges too, including deposit insurance and access to the “discount window” (allowing them to borrow money from the central bank), under a long-standing pact between banks and regulators.

The banks’ system of back-ups, capital buffers and procedures does indeed seem robust. Many of the world’s biggest banks are extremely strong, with plenty of capital and a long record of high profits. Part of their strength comes from having passed some of their risks to others, including hedge funds, private-equity firms, insurance companies and pension funds. Some observers now feel that in view of this reduced risk, the regulatory capital banks are required to hold may be excessive and could be better employed elsewhere.

Regulators want to safeguard the strength and soundness of the banks they supervise, so they tend to shield them from the full force of domestic or external competition. But how far should they stack the cards in favor of licensed banks? If the banks enjoy too much protection, they have little incentive to compete on price or quality with other banks, or indeed with non-banks offering similar services. If they have too little, they may compete recklessly and ruin themselves – and perhaps the entire banking system with them.

Yet because banks are so heavily regulated, and to a large extent shielded from non-bank competition, it is difficult to know how much better they would do in a more liberal environment. Banks mostly compete with other banks, but on mutually accepted terms. In some markets, such as Britain’s, that has led to dominance by just a few banks, despite apparently fierce competition between banking brands. When a handful of banks in a dominant position show exceptionally high returns on capital year after year, it suggests that potential competitors are being kept out. In Britain, that was the conclusion reached by a series of government-sponsored studies, which led to some attempts at corrective action.

Bank supervisors, because of their preoccupation with systemic risk, have tended to be quite tolerant of anti-competitive behavior by banks. Banks have found that imposing high charges for making payments, and being able to use customers’ cash while these payments are being processed, have been reliable sources of revenue, bearing little relation to the underlying costs. Anyone who wants to compete in these areas has to face the fact that almost every transaction ends with a payment into a bank account.

But now the pendulum is beginning to swing the other way. Bank regulators are becoming more concerned to ensure transparency in the way that banks operate and compete, and have realized that the real engines of an economy are the users if banking services, be they savers, consumers or businesses.

Moreover, some regulators worry that the credit risk and market risk which banks have traditionally borne is ending up elsewhere in the economy. That is fine if the new risk-takers, or their financial advisers, understand what they are doing; not so fine if it results in poorer returns from the pension and insurance funds on which everyone is relying to sustain an ageing population in future.

All this means that bank regulators will have to rethink their role. Perhaps they should be promoting leaner, less profitable, more utilitarian providers of basic services and recyclers of risk, leaving more of banks’ traditional businesses to be picked off by non-bank competitors. Meanwhile, the insurance industry and the pension funds should be subject to more systematic regulation. The nightmare alternative may be a handful of megabanks with a stranglehold on financial services whose profits are largely protected from outside competition.

1. Banks are known to have higher costs that other financial companies that are not so strictly regulated. True.
2. Since banks are strictly regulated they don’t have much of privileges. False.
3. One of the reasons of the banks’ strength is the fact that they have passed some of their risks to organizations like hedge funds, private-equity firms, insurance companies and pension funds. True.
4. Regulators tend to shield the banks they supervise from the full force of domestic or external competition, because they want to safeguard their strength and soundness. False.
5. Since banks are so heavily regulated, and to a large extent shielded from non-bank competition, it is easy to foresee how much better they would do in a more liberal environment. True.
6. When a bank shows exceptionally high returns on capital year after year, it suggests that potential competitors are being kept out. True.
7. Imposing high charges for making payments, and being able to use customers’ cash while these payments are being processed, haven’t been reliable source of revenue. False.
8. Since the real engines of an economy are the users of banking services, bank regulators are becoming more concerned about making the way banks operate and compete more confused. True.
9. Some regulators suspect that the credit risk and the market risk are the worst ones a bank may confront. False.
10. More systematic regulation is needed in the sphere of insurance industry and when it concerns the pension funds. True.

Task 2. Choose the correct grammar form of the verb and insert it in the sentences given below.

1. As new loans … in the banks throughout the economy, these banks … some of the deposits they receive, triggering the money multiplier and increasing the supply of money.
2. A) would have been deposited … had loaned out
3. B) will be deposited … will loan out
4. C) are deposited … will loan out
5. If business environment … rapidly, banks … the new market opportunities created by new technology or national deregulation.
6. A) had changed … will have to seize …
7. B) changed … would have to seize…
8. C) will change … have to seize …
9. In case borrowing and lending … a well managed and well-understood line of business, people all over the world … the bank’s facilities.
10. A) has become … will make greater use of
11. B) becomes … would make greater use of
12. C) will become … make greater use of
13. If there … lucrative lending opportunities around, the banks might be able to induce people to exchange cash in circulation for bank deposits.
14. A) had been … might be able to induce
15. B) will be … may be able to induce
16. C) were … might be able to induce
17. If market interest rates … 8 per cent last month, and the central bank … it had been prepared to lend to commercial banks at 8 per cent, commercial banks  … up to the hilt.
18. A) had been … had made it known … would have lent
19. B) were … made it known … would lend
20. C) will be … make it known … will lend
21. If you … us to list the monetary loans, unsecured against the borrower’s assets, I … bank overdrafts, corporate bonds, credit facilities and credit card debt as examples.
22. A) ask … will be given
23. B) asked … would give
24. C) had been asked … would give
25. If your credit history … below prime at that time, private investors in the USA simply … you a mortgage 2 years ago.
26. A) were … would supply
27. B) has been … wouldn’t have supplied
28. C) had been … wouldn’t have supplied

8.If the payment for the batch of new machines … in advanced, our suppliers … us to pay the fine.

1. A) has not been effected … requires
2. B) had not been effected… would have required
3. C) had not effected … would require
4. Our business partners … the delay fine and supervision costs from the final payment due to the contract if we … the goods on due date.
5. A) will deduct … has shipped
6. B) would have been deducted … had been shipped
7. C) would have deducted … had not shipped
8. If the efficiency ratio … the single most important metric when it comes to identifying great bank stocks, we… to predict if it is worth buying additional stocks.
9. A) .. will be able to predict
10. B) has been … are able to predict
11. C) will be… will have been unable to predict

Task 3. Read the text below. Choose the correct word from A, B, C, D. For each gap 1-10, mark one letter on your answer sheet.

Does it still make sense for banking systems …(1)… and isolated from each other? The IMF and the World Bank, which jointly do a financial-sector assessment program (FSAP) for any country that requests one, have been … (2) … not to prescribe any particular paradigm.

Regulators in America – arguably the world’s most successful economy – see strength in their financial system’s … (3)… and fragmentation. It ensures competition not only between financial institutions but between regulators too. If a bank does not like one supervisor, it can switch to another. That … (4) … regulators on their toes and encourages them to embrace innovation. Why else, they ask, has the most financial wizardry of the past 50 years come from America?

There are drawbacks, however. The fragmentation is messy and expensive and can lead to violent … (5) … For example, the lifting of restrictions on banking across state borders has led to frenzied opening of new branches in urban areas in Florida, New York, Texas and, above all, Chicago. Some of these places are already … (6)…, but the frenzy continues. In the end some small banks will probably … (7)… But that is the American way: competition must not be stifled as long as the system itself is not … (8) …

Other countries have taken quite a different route, curbing competition among their own banks and limiting foreign … (9)… or ownership. India, for instance, nationalized its banks between 1969 and 1991, but has slowly liberalized since, creating nine private banks to compete with the publicity or mutually owned ones. Yet … (10)… ownership has been severely restricted and looks likely to remain so.

Task 4. Match a term in the left-hand column with its description or definition from the right-hand column.

Task 5. Choose correct words to fill in gaps in the sentences.

1. India’s banking system … in the 1970-s and 1980s as an instrument of government policy to finance public spending and investment by big companies.
2. A) was developed B)  was opened                     C) was invented
3. Only recently did the government recognize that the system is entirely … to the millions of small informal businesses that make up the bulk of the Indian economy.
4. A) unacceptable B)   uncomfortable                C) unsuited
5. In Europe, Italy’s is not the only European banking system to resist … buyers.
6. A) native B)  foreign               C) unknown
7. Most German banks are still publicly or mutually owned and therefore can’t be sold, and the same … for half of the French banks.
8. A) counts B) goes                  C) cares
9. In Britain, foreign-owned companies cannot be part of the FTSE 100 index, so British institutional … would either oppose the bid or dump the shares after a deal.
10. A) intermediaries B) suppliers  C) investors
11. Retail banks – those that do business mainly with individuals – often … mutual or state-owned institutions.
12. A) put in for B) race against                C) compete with
13. Increased competition in lending has meant over the past couple of decades banks … their lines of businesses.
14. A) have minimized B) have decreased C) have expanded
15. Among the universal banks there is America’s Citigroup, which is the product of … between Citibank’s global-banking business and the Travelers insurance group.
16. A) a deal B)  a contest               C) a merger
17. Many companies in America raise money by selling bonds rather than by … from banks, a process called disintermediation.
18. A) taking B)   borrowing                 C) stealing
19. As well as entering the investment-banking business, commercial bans have responded to increased competition by trying to cut … .
20. A) costs B)   overheads                C) returns

Task 6. Match the two parts of the sentences.

1. ABN Amro’s long and apparently successful battle to secure a 30 percent controlling stake in Italy’s Banca Antonventa raises the prospect of more foreign takeovers in the European banking sector.
2. If that does happen, the question will become how to create more value from such mergers.
3. Indeed, the results of European cross-borders deals have been disappointing, especially compared with domestic bank mergers.
4. No one should underestimate the challenge of successfully executing any sort of merger, particularly one that spans acquirers from other member states.
5. European banks that choose their targets well and negotiate firmly, however, can create plenty of value in the future.
6. Companies, with the help of farsighted and determined managers, can anticipate and overcome the hostile behavior of home country stakeholders
7. Obstacles facing merging banks can be grouped into two categories: barriers to transactions and efficiency barriers.
8. EU law does not permit discrimination between domestic acquirers and different countries, jurisdictions, and traditions….
9. Different national laws and regulations do impede the harmonization of retail products and services across European countries.

• The extent to which these factors prevent acquiring banks from extracting cost efficiencies is likely to be small, given the domestic nature of retail banking.

1. the hostile behavior of home country stakeholders.
2. different countries, jurisdictions, and traditions….
3. more value from such mergers.
4. acquirers from other member states.
5. the harmonization of retail products and services across European countries.
6. firmly, however, can create plenty of value in the future.
7. the prospect of more foreign takeovers in the European banking sector.
8. likely to be small, given the domestic nature of retail banking.
9. be grouped into two categories: barriers to transactions and efficiency barriers.
10. compared with domestic bank mergers.

Task 7. Complete the sentences by changing the form of the word in capitals when it is necessary.

1. The acquirer’s management, in an effort to MAINTAIN good MAINTENANCE

relations with local stake holders, often entered into lengthy and complex

negotiations.

2. These negotiations ultimately guaranteed the status quo at the TARGET TARGETING

bank, thus severely curtailing the acquirer’s freedom to integrate it

and to generate stand-alone performance improvements.

3. Such voluntary agreements covered issues like future head counts,

the composition and size of LOCAL management teams, the continuation  LOCALITY

of bank sub-brands, etc.

4. Acquires PROVIDE similar guarantees to banks in Central and Eastern PROVIDER

Europe, where cross-border takeovers have been much more successful.

5. In general, such guarantees are uncommon there, because these

countries have generally welcomed foreign capital and recognized

the importance of BANKING skills to the development of their markets.              BANK    

6. Given experience and very recent events, a future acquirer could CHOOSE CHOICE

to take a tougher approach by informing a target’s management that

voluntary guarantees of the kind that marked previous deals are unacceptable.

7. Moreover, when management is RELUCTED to provide general RELUCTANTLY

information about market and operational risks, the acquirer could mobilize other

stakeholders or sympathetic regulators.

8. That said, UNSOLICITING bids have a greater chance of succeeding UNSOLICITED

when the target is perceived to be weak and the acquirer strong.

9. Shareholders in such cases will be more inclined to sell, the potential

for VALUE will be greater.                                                                                VALUED

10. If the transaction and EFFECTIVE barriers specific to cross-border deals EFFICIENT

cannot explain the value gap, what does?