III. Financial World I:Money & BankingA. Monetary System &

Policy

1. Introduction

Reflecting the developments of the real part

The DevelopmentThe DevelopmentOf CapitalismOf Capitalism

Establishment ofCentral Banks

Liberalization ofFinancial markets & Globalization

Primary Functions of Money Money needed for three purposes

• Medium of exchange• Unit of account• Store of wealth

• Transactions• Speculative• Precautionary

The Developments of CB in The World

The CBs Establishment Dates

Firstly Issuing Banknotes

Bank of England 1694 1844

Banque de France

1800 1848

Nederlandsche Bank

1814 1863

Banco de Portugal

1846 1888

Banco de Espana

1874 1874

Bank of Japan 1882 1883

Banca d’Italia 1893 1926

TCMB 1930 1930

Kaynak: The Development of Central Banking, Nisan 1994, BOE

b. Historical Background of TCMB

After 1980: Budget financing from CB gradually eliminated. Public Sector started to sellbonds and notes to have revenues.Borrowing from both domestic & foreignsources become a dominant trend.

August 1989- Turning Pointof Liberalisation Movement:Opening up foreign capital accounts fully andmaking the TL convertible.

c. Restructuring of Institutional Framework. A Digression:The Changing Role of The CB

The primary function of the CB is, by managing the monetary variables bothdomestic and foreign , to accomplish price stability which in practise meansachieving a targeted rate of inflation every year.

d. Tools of Monetary PolicyFor the regulation of money supply there are four primary tools thatare used by the CB:

Required Reserve Ratio(%)

Türk Lirası Disponibilite( current rates)

Yükümlülükler Oranlar

Vadesiz,İhbarlı Mevduatlar ve Özel Cari Hesaplar

11

1 Aya Kadar Vadeli Mevduatlar 11

6 Aya Kadar Vadeli Mevduatlar 8

1 Yıl ve Daha Uzun Vadeli ile Birikimli Mevduatlar

5

1 Yıla Kadar Vadeli Türk Lirası 11

Yabancı Para( USD $ or Euro)

Yükümlülükler Oranlar

Vadesiz,İhbarlı DTH/Yabancı Para Özel Cari Hesaplarİle 1,3,6 Aya ve 1 Yıla Kadar Vadeli DTH Hesapları

11

1 Yıla Kadar Vadeli Yabancı Para 11Kaynak: TCMB

RRR(%)

To hold cash or near cash values according to their deposit liabilities

Years RRR(%)

1959 5

The 1980s 10-15

1986 30

is a special type of interest that CB charges when lending money to banks.

Rediscounting is done by,Setting an upper limitChanging of interest charged in general or for some specificsectorsSpecifying the type of papers that will be accepted.

Open Market Operation

REPO is a repurchasing agreement whereby valuable papersare sold with a specific price and are bought back at the endof a specific time, and the seller gets his money back with interest.

If REPO agreement made with foreign currencies, which is calleda swap.

DBNS is abbreviated from domestic borrowing notes of state.

The CB decidesThe overnight borrowing and lending rates for interbank dealings.With what is called The Late Liquid Window the rate of Borrowing and lending in Interbank Money Markets for one nightThe rate of borrowing possibilities either for one night or one week for the OMO.

Tarih Borç Alma Borç Verme20.02.02 57.00 62.0025.04.03 41.00 48.0005.02.04 24.00 29.0011.01.05 17.00 21.0002.01.06 13.50 16.5014.09.07 17.25 22.2518.01.08 15.50 19.5017.06.09 8.75 11.2517.07.09 8.25 10.7519.08.09 7.75 10.2517.09.10 6.25 8.7505.08.11 5.00 9.0021.10.11 5.00 12.5022.02.12 5.00 11.5019.09.12 5.00 10.0019.10.12 5.00 9.5021.11.12 5.00 9.00

Overnight(O/N)

Kaynak: TCMB

The Late Liquid Window

Tarih Borç Alma Borç Verme20.02.02 5.00 62.0015.10.03 5.00 36.0020.12.04 5.00 26.0009.12.05 5.00 21.5021.07.06 13.50 25.5014.12.07 11.75 23.0019.12.08 11.00 20.5020.11.09 2.50 12.0017.12.10 0.00 12.0021.10.11 0.00 15.5022.02.12 0.00 14.5019.09.12 0.00 13.0019.10.12 0.00 12.5021.11.12 0.00 12.00 Kaynak: TCMB

e. Closer Look at Aggregates

2001 2003 Değişim

2001 2003 Değiş.

Varlıklar 80,884.4

80,192.4

-692.0 Yüküm. 80,884.4

80,192.4

-692.0

I. Altın Mevcudu

1,527 2,234 707 I. Sermaye

0.025 0.025 0

II. İç Krediler

766.3 6.6 -759.2 II. Mevduat

45,553.2

56.260.8

10,707.6

III. Dış Krediler

263.2 166.3 -96.9 III. Dış Krediler

11.3 12.1 0.8

IV. Açık Piyasa İş.

7,014.6

433.0 -6,581.6

IV. Açık Piyasa İş.

12,630.3

8,260.1

-4,370.2

V. Döviz Borçluları

27,045.8

46,922 19,867 V. Döviz Taahhütler

101.0 85.4 -15.6

VI. Madeni Para

1.8 7.4 5.6 VI. Tedavül.Banknotlar

5,282.7

10,675.5

5,392.9

Tablo 3. 2001-2003 Dönemi TCMB Bilanço Gelişmeleri(Trilyon TL)

(Billions TL) 2005 2006 2007 2008 2009 2010 Nov.Currency 19,6 26,8 27,9 32,7 38,3 48,7Reserve Money 32,7 41,4 44,9 55,8 64,7 73,2Money Supply-M1 61,9 72,2 77,7 83,4 107,1 121,9Banknotes and Coins 18,3 24,7 26,2 30,6 34,3 44,7Money Supply-M2 237,9 297,5 345 434,2 494 559,2

Tablo 4. Main Monetary Indicators, 2005-2010.

2005 2006 2007 2008 2009 2010 Nov.Deposit Bank Credits 121,00 170,60 214,80 267,70 292,60 395,70 Inv. & Dev. Bank Credits 5,7 6,7 8 10,7 12,8 14,8Net Credit Volume 126,5 177,3 222,3 278,4 305,5 410,5

2005 2006 2007 2008 2009 2010 Nov.Total Deposits 221,60 TL 276,90 TL 314,00 TL 396,60 TL 444,50 TL 500,30 TL In TL 145,20 TL 170,50 TL 209,80 TL 268,80 TL 305,20 TL 355,80 TL TL Saving Deposits 86,80 TL 109,30 TL 136,40 TL 179,70 TL 196,70 TL 226,00 TL FX Deposits 76,40 TL 101,40 TL 104,40 TL 127,80 TL 139,30 TL 144,50 TL

B. The Banking System1. Basics The primary funtion of the banking system is tofacilitate money and credit markets.

Banks collects as many assets as possible and lend them

to their customers with an interest rate.

2. A Brief Historical Background

Until end of SecondWorld War:Banks are publicly owned:Sümerbank,Etibank.

Until 1980s Dominant banking activitywas financing production and growth process for industralisation policy.

During the 1970s:It was the high inflation years.The Gap btw interest rate & inflation widened 25-30 points.

End of the 1970s:A new warket created openlyoutside the banking system called bankers or money brokers. But this practice washalted partly by administrativemeasures.

Tablo 6. Main Indicators and the Structure of the Banking Sector (2011-2012)

Total Number of Branches

Banka Grupları Eyl.11 Ara.11 Haz.12 Eyl.12Kamu Bankaları 2894 2909 2988 3058Özel Bankalar 4995 4943 5002 5044Yabancı Bankalar 1906 1937 1944 1963Katılım Bankaları 663 685 741 784Kalkınma ve Yatırım Bank. 41 41 41 41TMSF Bankaları 2 2 2 2Bankacılık Sektörü 10501 10517 10718 10892

Kaynak: BDDK

Tablo 6. Main Indicators and the Structure of the Banking Sector (2011-2012)

Banka Grupları Bazında Toplam Aktiflerin Gelişimi

Banka Grupları Ara.10 Eyl.11 Ara.11 Eyl.12Kamu Bankaları 298,593 344,481 341,55 355,659Özel Bankalar 497,088 620,551 619,19 667,383Yabancı Bankalar 135,84 156,449 158,291 169,216Katılım Bankaları 43,339 53,573 56,148 65,028Kalkınma ve Yatırım Bank. 30,958 37,929 41,636 50,434TMSF Bankaları 849 877 880 856Bankacılık Sektörü 1,006667 1,21366 1,217695 1,308576

Kaynak: BDDK

Tablo 7. Performance Indicators of the Banking Sector( 2011-2012)Ara.10 Eyl.11 Ara.11 Eyl.12

Sermaye Yeterliliği Standart Rasyosu 19 16,4 16,6 16,5Mevduatın Krediye Dönüşüm Oranı 88,5 99,5 101 105,6Aktif Karlılığı- ROA( Dönem Net Karı/ Ort Aktifler 2,5 1,8 1,7 1,8Özkaynak Karlılığı- ROE ( Dönem Net Karı/ Ort Özkay. 20,1 15,4 15,5 15,7Net Faiz Marjı 4,3 3,3 3,5 4Bankacılık Sektörü Toplam Aktifler/GSYH 91,6 96,9 93,8 95,6Serbest Sermaye/ Toplam Aktifler 9,9 8,6 8,8 9,5

Slides prepared by Kamer Olkay Aşık, DEU Faculty of Business, Student of Practical Training Class under guidance of Prof. Sedef Akgüngör