The Classification of Financial Institutions

Abstract

This chapter examines the problems associated with classifying financial institutions. Legislative distinctions made between commercial and investment banking, say in Japan and the United States, are not so relevant in the United Kingdom, or for that matter in other European countries. For example, Article 65 of the Japanese Securities and Exchange Law 1948 states that no bank, given a few exceptions, may undertake securities business. Similarly the US Glass-Steagall Act of 1933 also legally separates commercial and investment banking business. This distinction is hardly apparent in Europe where banks are generally classified according to their legal corporate status, that is whether they are private joint-stock institutions, mutual bodies (like building societies and cooperatives) or government owned. One must remember that with any classification system there are usually exceptions to the rule and this chapter aims to highlight some of these problems.