Diversification and change

A recent survey of 13 banks in five West European countries (Belgium, France, Luxemburg, Spain and Switzerland) found an average of only 14% of their customers have invested in shares. The proportion of Europeans who are choosing to invest their savings in the stockmarket, rather than leaving them on deposit with a bank, varies sharply from country to country, but in general is rising rapidly. Rather than buy shares in individual companies, most small investors buy a share in a mutual fund, which pools thousands of shares and bonds. (In theory, this diversification makes investment less risky than investing in a handful of shares.) At one end of the scale, in Italy, only 3% of households’ 2,500 trillion lire ($1,520 billion) in personal savings are invested in mutual funds. At the other end, in France, 22% of personal savings are invested in mutual funds.

Rather than lose all this money, which would probably otherwise have been put on deposit, banks are setting up their own mutual funds and trying to persuade their customers to invest in them. Thus many of advertisements and leaflets which clutter a modern bank branch are pushing mutual funds and other investment opportunities.

The same process is happening with insurance. Until recently, a European would have gone to several different companies to insure his life, his car and his house. Now banks are turning themselves into financial supermarkets, at which customers can buy all the financial services they can conceivably need, including insurance.

Again, the pace at which banks are moving into insurance varies from country to country. France is once more in the lead – banks sell 35% of the life insurance bought by French people each year. In Germany, banks sell only 5% of life insurance, but they are developing the business fast. Deutsche Bank, Germany’s largest bank, has bought Deutsche Herold, a medium-sized insurance company, and now has 15,000 people selling insurance. The money raised in this way is invested in mutual funds, also run by Deutsche Bank.

There are areas of finance, however, where great changes have not yet taken place. For example, the way small sums of money are transferred between banks in different countries is still prehistoric. A study by the European Commission found that the 200 million small transfers made each year take an average of six days (and as much as 30 days), and that banks charge an average of 14% of the sum transferred. Several consortia of European banks are working on ways to adapt the systems used to make large transfers for companies to the needs of retail customers.

For self-employed people with their own small business – a shop or a small farm, for example – their relationship with the manager of their local bank branch can still mean the difference between survival and bankruptcy. It is difficult and time consuming for centralized departments in charge of making loan decisions to tell which small business will be able to repay their loans on time. Usually the banks rely on the local knowledge of the managers of their branches, who in a small town would be expected to know whether a local businessman could be trusted or not.

There has also been little major change in the way most Europeans take what will probably be the biggest financial decision of their life – to buy a house. In Britain, where financial institutions are less restricted in what they can do than they are in the rest of Europe and where a higher proportion of people own rather than rent their house than in other European states, most people still turn to the traditional source of mortgages – a building society.

A building society (called also a bausparkasse in Germany or a thrift in America) exists solely to lend savers’ deposits to people who want to buy or build houses and flats. Typically in Britain a building society will lend the buyer of a house up to 90% of its cost. Thus, if a house costs £100,000, the buyer would pay a deposit of £10,000 and then pay the building society interest on £90,000 for 20-25 years, when the mortgage must be repaid. In Britain, the rate of interest paid usually varies with inflation; in France and Germany it is usually fixed at the time the mortgage is taken out and does not change.

For many people mortgage payments can consume almost as much of their income as tax does. The size and long duration of this commitment means that most Europeans are conservative and choose a tried and trusted method of raising a mortgage.

Banks also use traditional methods to attract their most valued customers – the rich. Most European banks offer an array of special services to people with cash and liquid investments above a certain level – usually at least $500,000. These private banks, as they are called, will do everything a client could require, from making all his investment decisions to paying bills. Coutts&Co., one of the more venerable private banks in Britain and banker to the Queen, prides itself on the lengths to which it will go to satisfy a customer’s every whim – it has even supplied a crew to sail a customer’s yacht from New York to London. At its modern head office in London, all of Coutt’s senior staff still wear tail coats and preserve the manners of an earlier age. Its customers pay handsomely for this service, but then most of them are too rich to notice.

1. Read the text and answer the questions:

A) What are the main trends in the European banking development nowadays?

B) What was the system of clearing cheques like in the past? How is it carried out now?

C) How do automated teller machines work?

D) What are the 2^nd and 3^rd generations of the ATMs like?

E) What other technological innovations are currently taking place in banking?

F) What are the main tendencies in the way people save their money in Europe?

G) What is happening in the sphere of the European insurance market?

H) What is a building society? What are its functions? What is the American counterpart of a building society?

I) What methods do banks use to attract wealthy people?

J) What are the high-street banks?

2. Write out the equivalents to the following Russian words and expressions: перебирать бумажки; туристические путевки; получить ипотечный кредит; надежный испытанный метод; индивидуальный предприниматель; занимать лидирующие позиции; в среднем только 14%; вклад в банке; стойка (барьер); кассир; головной офис; банк, клиентом которого является королева; консорциум; номинальный доход; в не столь далеком прошлом; темп; выписка о движении средств по счету; кредит; зайдите с улицы; вкладчик; чек; бумажная работа.

3. Explain the meaning of the following words and expressions: deregu-

lation; building society; mutual fund; liquid investment; passbook.

4. Provide information on the proper names you come across in the text.

5. Translate the text in writing.

6. Translate the following sentences using words and expressions from the text:

A) В былые времена большинство европейцев относились к своим банкам с той же симпатией, с какой индюшки относятся к Рождеству.

B) Правительства государств ЕС регулировали большинство операций, которые осуществляли их банки, в частности путем определения минимальной ставки процента по кредитам и максимальной ставки процента по вкладам.

C) Во всех городах Европы банки, как правило, размещались в унылых, уродливых зданиях. Их воздвигали в начале века, чтобы они впечатляли прохожих своей солидностью и неприступностью, а отнюдь не гостеприимным видом.

D) Попробуйте войти сегодня в один из банков – в Лондоне или Бильбао, и вас скорее сего потрясет масштаб перемен.

E) В результате европейское банковское дело становится все более конкурентным, у клиентов появляется больше выбора, а банкам приходится работать в более напряженном режиме.

F) До недавнего времени главной задачей коммерческих банков была «перетасовка» листков бумаги.

G) Современные системы телекоммуникаций делают всю эту бумажную волокиту ненужной.

H) Новые технологии позволяют банкам расширить сферу своих услуг и, соответственно, видоизменять сферу использования этих услуг клиентами.

I) Как только клиент вставляет в банкомат специальную карточку и набирает номер, записанный магнитным кодом на оборотной стороне каждой карточки, банкомат выдает ему наличные деньги, и извещает клиента о том, сколько денег осталось на его текущем счете.

J) Решая куда вкладывать свои сбережения, европейцы становятся более разборчивыми и требовательными.

K) Число европейцев, которые предпочитают вкладывать свои сбережения в фонды, а не просто класть их на депозит, сильно отличается от страны к стране, но в целом продолжает быстро расти.

7. Learn the words and expressions in bold by heart.

UNIT 2

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