History of Financial Institutions:

For centuries, banks have influenced the economies and politics of the world. Traditionally,
banks originated as places where businesses could secure loans to purchase inventory, and
thereafter collect the funds with interest once the goods were sold. The origin of the word bank is
derived from the Italian word, "banco" or desk. During the Renaissance, Florentine bankers
conducted their transactions above desks covered in a green tablecloth.

It has been speculated the earliest banks were actually religious temples in the ancient world,
where deposits of grain and other goods were made. Considered sacred places, these temples
were well protected from potential thieves. There are also historic records which point to loan
activity extended by priests to merchants in ancient Babylon. Hammurabi's Code, the oldest, best
preserved law code in existence was created circa 1760 B.C. and includes laws which were used
to govern bank operations.

Not surprisingly, the Ancient Greeks further developed the concept of banking. Transactions
such as loans, deposits, currency exchanges, and more were conducted in temples as well as
private and civic components. Evidence also points to the concept of credit. In return for
payment from a client, a creditor in one Greek port would write a note of credit that the client
could later cash in another port city. This convenient method saved the client from the danger of
carrying coinage with him on his journey. Historic records indicate that a Pythius of the early 5th
century B.C. operated as a merchant banker throughout Asia Minor.

The rise of the Roman Empire brought about greater administrative and financial regulations for
banking. The charging of interest on loans was further developed by scrupulous financiers,
making the system highly competitive. However, the bank system eventually broke down in
large part to the Roman preference for cash transactions. Following the fall of Rome, Western
Europe essentially abandoned banking. It did not experience a revival until the need for
financing the Crusades stimulated its re-emergence.

Interestingly, the world's oldest bank has been in existence since its founding in 1427. The Banca
Monte dei Paschi di Siena SPA (MPS) was created in the city state of Siena, Italy. The bank
today is comprised of nearly 1,800 branches, 28,000 employees and more than four million
customers in Italy and abroad.

Fast forward to Western banking history, which is generally traced to the coffee houses in
London. Founded in 1565, the Royal Exchange acted as a center of commerce for the city. A
hierarchy of banking started at the top with bankers who conducted business with heads of state,
followed by city exchanges, and at the bottom, pawn shops. In 1609, the Amsterdamsche
Wisselbank (Amsterdam Exchange Bank) was established, making Amsterdam the financial
center of the Western world.

Concepts of capitalism extolled by Adam Smith, considered the father of modern economics, and
the advent of the Industrial Revolution gave way to a massive growth in the banking industry in
the 18th and 19th centuries. In the United States, the first banks required special permission from
the state government to operate. The state's supervision proved inadequate as individual banks
began issuing their own notes. By 1860, more than 10,000 various bank notes were circulating
throughout the country. Counterfeiting was rampant and hundreds of banks failed. Government
reforms created a new system of banking which included an involved method for producing
authentic bank notes.

With the onset of the worldwide depression in the early 1930s, banks took a hard hit, which led
to Congress' creation of federal deposit insurance. President Franklin D. Roosevelt oversaw the
implementation of laws aimed at limiting risks to banks and restoring Americans' confidence in
the banking system.

Since then, banking has undergone a revolution with technology transforming the way
Americans bank. First telephone banking, and then ATMs, debit and credit cards, have lead the
way to new innovations. Today, online banking and electronic money are evolving. Banks strive
to serve the greater public in a competitive market that ensures a safe and sound banking system.
From religious temples and Italian desks to coffee houses and the Industrial Revolution, banking
has forever changed the way we live.

History of Financial Institutions with relevance to Pakistan:

The banking in Pakistan has been dominated by government owned institutions. It has
accommodated the financial needs of the government, public enterprises and private sectors .Public
sector dominancy, among others, lead to inefficiency in the banking .The economic efficiency of the
banks remained low that led to low savings and investment in the private sector which resulted in
low These problems include concentrated ownership of financial assets, high taxes, narrow range of
products and have not diversified into consumer and mortgage financing. A strong regulatory and
supervisory system is necessary to cop with the financial crises and promotes the efficient function of
financial markets. Therefore the challenge is to formulate an appropriate regulatory framework that
enables the banking system to be more resilient to insolvency. In addition timing, sequencing and
speed of restructuring measures are very important for successful restructuring. Moreover, the
reforms of the financial system are important to remove market distortions. Financial sector in
Pakistan has been under reforms process since early 1990’s. The objectives of these reforms has been
removing inefficiencies of financial intermediations and maintaining stability and enhancing growth
In order to improve the efficiency of financial system the Government of Pakistan initiated
macroeconomic and financial sector restructing program. International agencies such as International
Monetary Fund (IMF), The World Bank and government of Japan provided technical support as well
as banking sector adjustment loan (BSAL) in 1996. The current spell of reforms process has started
in 1997. The main concern of the reforms agenda has been on the recovery of non-performing loans,
retrenchment of surplus staff, closure of over-extended branches, privatization of banks, introduction
of international accounting standards, strengthening prudential regulation and establishment of
banking courts. During 1998 and 1999, the reform process suffered badly.
The Government of Pakistan has decided in 2000 to review the reforms program. Therefore the
Government approached the World Bank to get support for revival of the reforms program. As a
result the World Bank approved a credit for the Pakistan Banking Sector Restructuring and
Privatization Project (PBSRPP). The main focus of PBSRPP has been to improve the efficiency of
state owned banks by reducing the cost structure, complete privatization of banks, liberalizing bank
branching policy, reduction in taxes, integration of national savings scheme to the financial markets,
discontinuance of the mandatory placement of foreign currency deposits by the commercial banks,
and strengthening the central bank to play effective role as a regulator of banking sector. Following
the guidelines provided in the agreement with the donors, the Government of Pakistan and State
Bank of Pakistan has taken several steps to restructure financial sector. These include privatization of
NCBs, corporate governance, capital strengthening, improving asset quality, consumer financing,
legal reforms, prudential regulations, E-banking, credit rating, reduction of corporate taxation and
human resource development (SBP, 2005). It was expected that these reforms will bring significant
economic benefits through a more effective mobilization of domestic savings and efficient allocation
of resources.

Overview of Pakistan’s Financial Sector

Financial sector in Pakistan consists of regulators, commercial banks, development finance
institution and stock market. Earlier the financial sector was supervised and regulated by three
organizations such as State Bank of Pakistan, Pakistan Banking Council and the Corporate Law
Authority (CLA). The SBP acts as central bank, Pakistan Banking Council (PBC) used to monitors
the performance of nationalized commercial banks and Corporate Law Authority regulates the equity
market. At the time of independence Pakistan inherited Habib Bank that was established in 1941 in
Bombay (Mumbai) which after creation of Pakistan shifted from Bombay to Karachi. On 1 st July
1948 the Government of Pakistan has established a central bank that is State Bank of Pakistan (SBP).
The SBP was jointly owned by the Government of Pakistan and private sector. In the following years
the government set up fully state owned bank namely National Bank of Pakistan.The Government of
Pakistan nationalized all banks in 1974 to make credit availability to highly priority sectors of the
economy.This step of nationalization completely wiped out the private sector from the banking
business. Nationalization affected the performance and efficiency of the banks. After analysing the
performance of nationalized institutions for a decade government has decided to revise the policy
decision of nationalization to encourage private sector participation, enhance efficiency and promote
competition among banks Consequently the Banks (Nationalization) Act, 1974, was amended in
1991. As a first step twenty three banks were allowed to work. Out of these ten banks belongs to
domestic sector and rests were international/foreign banks.

The SBP has also decided to enhance its role as a regulator of banking sector. As a first step, in 1993
the SBP advised banks to set quarterly recovery targets, submit their progress reports and formulate
strategies to improve future recovery. Furthermore, in 1997 SBP has revised disclosure standards and
banks were directed to submit their annual accounts on new format as per with international
accounting practices. The SBP adopted two new systems to monitor and evaluate the performance of
each bank. These include CAMELS (i.e. Capital adequacy, Asset quality, and Management quality,
Earnings, Liquidity and Sensitivity to Market Risk Systems and controls) and CAELS (Capital
adequacy, asset quality, earnings, liquidity and sensitivity).Further down to the road of reforms in
1997 the Government of Pakistan amended two important banking laws such the Banking
Companies Ordinance (1962) and the State Bank of Pakistan Act (1956). Moreover the Pakistan
Banking Council was abolished and the State Bank of Pakistan has been given sole responsibility to
regulate banking sector. Further, all appointments and removals of Chief Executives and Board of
Nationalized Commercial Banks (NCBs) and Development Financial institutions (DFI) are now
required to be made with the approval of the State Bank of Pakistan. Further the Banking Tribunal
Ordinance (1984) and Banking Companies (Recovery of Loans) Ordinance (1997) were repealed
through promulgation of Banking Companies (Recovery of Loans and Advances, Credit and
Finance) Ordinance (1997). In order to strengthen the SBP’s role as independent and efficient
regulator the Government has decided to restructure the SBP. Consequently in 2001, the
SBP has been divided into three organizations; 1) the SBP as a central bank, 2) SBP-Banking
Services Corporation (SBP-BSC), and 3) National Institute of Banking and Finance (NIBAF).
Moreover to regulate capital market and leasing and investments banks a new organization namely
the Securities and Exchange Commission of Pakistan (SECP) was created in 2001. The SECP has
replaced CLA and become independent regulator. Now there are two regulators of financial sector
such as theSBP and the SECP

Role of Financial Institutions

Financial intermediaries perform five basic functions that affect the real economy.
(i) Mobilizing savings from domestic households and corporates
(ii) Pooling and managing risk
(iii) Acquiring and disseminating information about investment opportunities
(iv) Monitoring borrowers and exerting corporate control and
(v) Facilitating the exchange of goods and services.

These functions of an efficiently working financial sector allow the above two channels to work
for promoting growth by:
a) mobilizing savings for investment
b) facilitating and encouraging capital inflows and
c) allocating the capital efficiently among competing uses

Empirical studies have demonstrated predominance of evidence suggesting a positive relationship

between financial development and economic growth.

Financial institutions interact with the environment in a number of

Ways:

Investors
Supplying the investment needed to achieve sustainable development.
Innovators
Developing new financial products to encourage sustainable development -
E.g. in energy efficiency.
Valuers
Pricing risks and estimating returns, for companies, projects and others.
Powerful Stakeholders
Shareholders and lenders they can exercise considerable
Influence over the management of companies.
Financial institutions performe extensively in these three sectors

 Commercial Banking Sector

 Investment Sector
 Insurance Sector

Figure 1

There may be other poverty traps stemming for the lack of financial institutions. Consider the
role of information costs. With a lack of financial institutions, the information costs for savers
and borrows are extremely high. Thus, these high information costs may also be reducing the
level of business investment and furthering slowing economic growth.The lack of financial
institutions results in a low savings rate, but also in increased information costs. Both the low
savings and high information costs reduce overall levels of business investment. This lower level
of investment slows any economic growth that the economically disadvantaged economy may be
experiencing. As in figure 1 the slower economic growth retards expansion of financial
institutions and thus the cycle starts over.

Banking Reforms in Pakistan:

The State Bank of Pakistan while keeping in view the strategic positioning of the banking sector
in the country, has introduced a number of reforms, restructuring regulations and policies aiming
at bringing refinement in this important organ of the economy. Some of the most important ones
are as follows:
1. Corporate governance standards have become more stringent.
2. Risk management has assumed primary focus in loan portfolio management.
3. Supervisory and regulatory capacities have been upgraded.
4. Credit decisions by banks are based on purely commercial considerations rather than driven by
political influence.
5. Human resource recruitment at all levels is largely based on merit.
6. Information technology is being widely used to promote e-banking.
7. Intermediation costs have been reduced and banking spreads have been tightened.

An analysis of financial soundness indicators for the banking sector which dominates the
financial sector of the country revealed an all round improvement, due to banking reforms
mechanism.

These can be summarized as follows:

1. There has been a consolidation and merger of banks particularly with investment banks that
has reduced the number but forfeited the capital base.
2. Capital adequacy ratios look much stronger in comparison with the past decade.
3. Asset quality has improved stemming the flow of non-performing loans.
4. Management has been strengthened by induction of professional at the top and second tiers.
5. System-wide liquidity is abundant and liquidity indicator is robust.
6. Earnings and profitability have taken remarkable turn upwards

Role of SBP in Reforms and their Implementation:

What was the role of the State Bank of Pakistan (SBP) in these reforms and how did it go about
performing this role? The SBP is both the Central Bank as well as the financial sector
supervisory authority. As a matter of fact, it has four major functions to perform under the law:

 Ensuring Soundness of the Financial Sector.

 Maintaining Price Stability with Growth.
 Prudent Management of the Exchange Rate.
 Strengthening of the Payment System.

It was felt and agreed between the Government and the State Bank of Pakistan that major deep
rooted reforms had to be undertaken as cosmetic changes have not achieved anything tangible.
As a regulator and supervisor as well as adviser to the Government, the SBP carried out
diagnostic studies, prioritized the constraints facing the banking sector, designed the reform
strategy and action plan, sought the assistance of the Government of Pakistan in making legal
and policy changes and international financial institutions for technical and financial resources,
monitored the progress and ensured implementation of policy, regulatory and institutional
changes required to move the process forward.
The task of the SBP was highly facilitated by a critical policy decision taken by the Musharraf
Government i.e. they will not keep the banks under Government ownership and control but
privatize them. Politically tough problems such as reducing the labour force and closing down
redundant and unprofitable branches were dealt with boldly. The Government injected Rs. 30.7
billion ($ 600 million) to offset the losses incurred by these nationalized commercial banks and
recapitalize them. Professional bankers were appointed as Chief Executives and persons from
private sector enjoying reputation of competence and integrity were taken on the Board of
Directors of the state-owned banks. These new comer/ outsiders were committed to the
restructuring of the banks prior to their privatization and indeed carried out serious preparatory
work that proved to be extremely useful subsequently in the successful sale of the banks.

Reforms Implemented:

What were the major reforms that had been implemented during the last seven years? Some of
the salient features are:

(i) Privatization of NCBs:

All the Nationalized Commercial Banks (NCBs) under the public sector, except one, have been
privatized. As a consequence the private sector owns, manages and controls about 80 percent of
the banking assets in the country - a reversal of the situation since early 1990s when NCBs held
80 percent of total assets. Even in the case of National Bank of Pakistan 23.5 percent shares have
been floated through Stock Market mainly aimed at small retail investors.

(ii) Corporate Governance:

Strong corporate governance promotes transparency, accountability and protects the depositors'
interests. The SBP has taken several measures in the last four years to put in place and enforce
good governance practices to improve internal controls, ensure strong oversight and bring about
a change in the organizational culture.

(iii) Capital Strengthening:

Capital requirements of the banking sector have to be adequate to ensure a strong base, and
withstand unanticipated shocks. The minimum paid-up capital requirements of the banks have
been gradually raised from $ 1 0 million to reach $ 100 million by 2009. This has already
resulted in mergers and consolidation of many financial institutions and weeding out of several
weaker banks from the financial system.

(iv) Improving Asset Quality:

The stock of gross non-performing loans (NPLs) that amounted to 2S percent of total advances
of the banking system and DFls has been reduced to 9 percent by March 2006. More than two-
thirds of these loans are fully provided for and net NPLs to net advances ratio has come down to
as low as 2 percent for the commercial banks. The positive development is that the quality of
new loans disbursed since 1997 has improved and recovery rate is 97 percent.

(v) Liberalization of Foreign Exchange Regime:

Pakistan has further liberalized its foreign exchange regime and allowed setting up of foreign
exchange companies in the private sector to meet the demands of Pakistani citizens for foreign
exchange transactions. Pakistani Corporate sector companies have also been allowed to acquire
equity abroad. Foreign registered investors can bring in and take back their capital, profits,
dividends, remittances, royalties, ete. freely without any restrictions. There are no restrictions on
the entry to any sector of the economy. Banking, insurance, real estate, retailing and all other
sectors can be owned upto 100 percent by foreigners.

(vi) Consumer Financing:

By removing restrictions imposed on nationalized commercial banks for consumer financing, the
State Bank of Pakistan has given a big boost to consumer financing. Middle income groups can
now afford to purchase cars, TVs, air conditioners, VCRs, ete. on installment basis. This, in turn,
has given a large stimulus to the domestic manufacturing of these products.

(vii) Mortgage Financing:

A number of incentives have been provided to encourage mortgage financing by the banks. The
upper ceiling has been raised, tax deduction on interest payments on mortgage has been allowed,
and a new recovery law aimed at expediting repossession of property by the banks has been
promulgated. The banks have been allowed to raise long term funds through rated and listed debt
instruments to match their long term mortgage assets with their liabilities.

(viii) Legal Reforms:

Legal difficulties and time delays in recovery of defaulted loans have been removed through a
new ordinance Le. The Financial Institutions (Recovery of Finances) Ordinance, 200 1. The new
recovery laws ensure the right of foreclosure and sale of mortgaged property with or without
intervention of court and automatic transfer of case to execution proceeding. A Banking Laws
Reforms Commission has reviewed and revised several pieces of legislations and is drafting new
laws such as bankruptcy law.

(ix) Prudential Regulations:

The prudential regulations in force were mainly aimed at corporate and business financing. The
SBP in consultation with the Pakistan Banking Association and other stakeholders has developed
a new set of regulations which cater to the specific separate needs of corporate, consumer and
SME financing. The new prudential regulations have enabled the banks to expand their scope of
lending and customer outreach.

(x) Micro Financing:

SBP has brought microfinance urider the purview of its regulatory and supervisory ambit.
However, the licensing and regulatory requirements for Micro Credit and Rural financial
institutions have been relaxed and have been made simple to facilitate widespread access to
small borrowers particularly in the rural areas. Unlike the commercial banks, the Microfinance
Institutions (MFls) can be set up at district, provincial and national levels with varying capital
requirements. There is less stringency and more facilitative thrust embedded in the prudential
regulations designed for this type of institutions. Six microfinance institutions are already
operating and then outreach has crossed half a million customers. But in this field we have to
learn a lot from the Indonesian experience particularly the BRI and the regulatory set up in the
Bank of Indonesia.
(xi) SME Financing:
The access of small and medium entrepreneurs to credit has been a major constraint to expansion
of their business and up gradation of their technology. A Small and Medium Enterprise (SME)
Bank has been established to provide leadership in developing new products such as program
loans, new credit appraisal and documentation techniques, and nurturing new skills in SME
lending which can then be replicated and transferred to other banks in the country. Program
lending is the most appropriate method to assist the SME financing needs. The new prudential
regulations for SMEs do not require collateral but asset conversion cycle and cash flow
generation as the basis for loan approval. The State Bank is also helping the banks in developing
their credit appraisal capacity for SME lending. Indonesian experience in this field will also be
particularly helpful to us.

(xii) Taxation:
The Government has already reduced the corporate tax rate on banks from 58 percent to 35
percent during the last six years and brought at par with the general corporate tax rate. This has
made banking a highly profitable business and the banks have earned about $ 1 billion of profits
in 2005 - a big jump from the huge losses incurred until a few years ago.

(xiii) Agriculture Credit:

A complete revamping of Agriculture Credit Scheme has been done recently with the help of
commercial banks. The scope of the Scheme which was limited to production loans for inputs
has been broadened to the whole value chain of agriculture sector. The broadening of the scope
as well the removal of other restrictions have enabled the commercial banks to substantially
increase their lending for agriculture by a multiple of five times compared to FY 1999-00 thus
mainstreaming agriculture lending as part of their corporate business. Unlike the previous years
when they were prepared to pay penalties for under performance under mandatory credit scheme
the banks have achieved consistently rising higher targets every year. Small private commercial
banks have also accelerated their agriculture lending as they face large unmet demand at
remunerative margins.

(xiv) Islamic Banking:

Indonesia and Pakistan have begun their journey in Islamic banking only recently. Pakistan has
allowed Islamic banking system to operate in parallel with the conventional banking providing a
choice to the consumers. A large number of Pakistanis have remained withdrawn from
commercial banking because of their strong belief against riba-based banking. These individuals
and firms - mainly middle and low class - will have the opportunity to invest in trade and
businesses by availing of loans from Islamic banks and thus expand economic activity and
employment. Several full-fledged Islamic banks have already opened the doors for business and
many conventional banks have branches exclusively dedicated to Islamic banking products and
services.

(xv) E-Banking:
There is a big surge among the banks to upgrade their technology platform, on-line banking
services and move towards E-banking. During the last four years has been a large expansion in
the A TMs and at present more than 1000 A TMs are working throughout the country. Progress
in creating automated or on-line branches of banks has been quite significant so far and it is
expected that by 2007 almost all the bank branches will be on-line or automated.

(xvi) Human Resources:

The banks have recently embarked on merit-based recruitment to build up their human resource
base - an area which has been neglected so far. The private banks have taken a lead in this
respect by holding competitive examinations, interviews and selecting the most qualified
candidates. The era of appointment on the basis of connections and recommendations from the
politicians has almost come to an end as the private owners want to attract and retain the best
available talent which can maximize their profits. This new generation of bankers will usher in a
culture of professionalism and rigour in the banking industry and produce bankers of stature who
will provide leadership in the future.

(xvii) Credit Rating:

To facilitate the depositors to make informed judgments about placing their savings with the
banks, it has been made mandatory for all banks to get themselves evaluated by credit rating
agencies. These ratings are then disclosed to the general public by the SBP and also disseminated
to the Chambers of Commerce and Trade bodies. Such public disclosure will allow the
depositors to choose between various banks.

(xviii) Supervision and Regulatory Capacity:

The banking supervision and regulatory capacity of the Central Bank has been strengthened.
Merit - based recruitment, competency - enhancing training, performance - linked promotion,
technology - driven process, induction of skilled human resources and greater emphasis on
values such as integrity, trust, team work have brought about a structural transformation in the
character of the institution. The responsibility for supervision of non-bank finance companies has
been separated and transferred to Securities Exchange Commission. The SSP itself has been
divided into two parts - one looking after central banking and the other after retail banking for
the government.

(xix) Payment Systems:

Finally, the country's payment system infrastructure is being strengthened to provide
convenience in transfer of payments to the customers. The Real-Time Gross Settlement (RTGS)
system will process large value and critical transactions on real time while electronic clearing
systems will be established in all cities.
These reforms will go a long way in further strengthening the Banking sector but a vigilant
supervisory regime by the State Bank will help steer the future direction.

OUTCOMES:
What have been the results of the above reforms?
Pakistan's economy was stuck in a low equilibrium trap in the decade of t 990s.
Per-capita growth rates were anemic and stagnant. Incidence of poverty was on the rise, so was
unemployment rate. Fiscal imbalances, high debt ratios, large external imbalances, depleting
foreign reserves and a depreciating currency had made macroeconomic management extremely
difficult.
The structural reforms introduced since 2000 in a wide variety of sectors improved economic
governance and prudent economic management have brought about a turnaround in the
economy. Last year the economy grew at 8.4 percent - the second to China and all
macroeconomic indicators are showing positive movement and stable levels. Incidence of
poverty has declined from 34 percent in FYO 1 to 24 percent in FYOS. Unemployment rate has
recorded a fall. Financial soundness indicators are all healthy and robust.
The banking business is no longer confined to meeting government's budgetary deficit and the
losses of public enterprises or catering to the requirements of big corporate houses and big names
in business. The customer base for loans has expanded from 1 million to 4 million during the last
six years. Agriculture, the largest sector of economy, which the commercial banks had neglected,
has now begun to receive large allocations. The commercial banks are giving more agriculture
loans than even in the history of Pakistan If this trend persists, the rural households will be able
to intensify the use of modern inputs and raise their productivity and income.
Credit cards, debit cards, personal loans and consumer durable loans are catching up fast.
Refrigerators, air conditioners, VCRs, Televisions are now available on credit. The consumers
are forced to save when a specific amount is cut from their salary every month to pay the
installment. Mortgage financing is helping the middle class families to own apartments and
residential houses. For the first time in the history of Pakistan, the middle class is beginning to
benefit from the banking system.
Microfinance institutions are expanding their branches and providing credit without any
collateral or security to poor households. Many people have availed this opportunity, some
bought a cow, some bought a milk buffalo or opened a small shop and female borrowers bought
sewing machines. They have started income-generating activities and recovery is no problem
from the micro-finance banks. Approximately, 500,000 poor household have benefited from
these loans in the last few years.The banking system which had recorded negative returns on
assets (RoA) and negative returns on equity (RoE) six years ago is now showing impressive
RoAs and RoEs comparable to best international banks. Capital base is strong, quality of assets
has improved, management practices are sound, corporate governance standards are being
followed and risk management is much better. Rapid credit growth in consumer segment and
repricing of loans at higher interest rates are the new challenges that the banking industry is
currently facing.

Role of SECP:
The Securities and Exchange Commission of Pakistan (SECP) was set up in pursuance of the
Securities and Exchange Commission of Pakistan Act, 1997. This Act institutionalized certain
policy decisions relating to the constitution and structure, powers, and functions of the SECP,
thereby giving it administrative authority and financial independence in carrying out its
regulatory and statutory responsibilities. The SECP became operational in January 1999 and has
come a long way since then. It was initially concerned with the regulation of corporate sector and
capital market. Over time, its mandate has expanded to include supervision and regulation of
insurance companies, non-banking finance companies and private pensions. The SECP has also
been entrusted with oversight of various external service providers to the corporate and financial
sectors, including chartered accountants, credit rating agencies, corporate secretaries, brokers,
surveyors etc. The challenge for the SECP has amplified manifold with its increased mandate.

Scope of SECP:

The scope of the authority of the Commission has been extensively widened since its creation.
The insurance sector, non-banking financial companies, and pension funds have been added to
the purview of the Commission. Now the Commission's mandate includes investment financial
services, leasing companies, housing finance services, venture capital investment, discounting
services, investment advisory services, real estate investment trust and asset management
services, etc. The Commission also regulates various external service providers that are linked to
the corporate sector, like chartered accountants, rating agencies, corporate secretaries and others

Financial Structure of America:

The twelve Federal Reserve Banks form a major part of the Federal Reserve System, the central
banking system of the United States. The twelve Federal Reserve banks together divide the
nation into twelve Federal Reserve Districts, the twelve banking districts created by the Federal
Reserve Act of 1913. Each Federal Reserve Bank is responsible for the regulation of the
commercial banks within its own particular district.

Other than FRS America’s other bodies that are regulation financial system are:

Bureau of Public Debt:

The Bureau of Public Debt borrows the money needed to operate the Federal Government
through the issuance of U.S. Savings Bonds, Treasury Bills and Treasury Notes.
Responsibility for:
U.S. Savings Bonds
U.S. Treasury Bills and Notes

Federal Financial Institutions Examination Council

The FFIEC is an interagency body that promotes uniformity in the examination and supervision
of financial institutions by the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the
Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS).
Responsibility for:
Uniform principles
Report forms
Standards

Federal Trade Commission:

The FTC enforces credit laws at non-banking institutions, including consumer finance companies
and credit bureaus (firms that collect and distribute credit reports).

Responsibility for:
Consumer finance companies
Credit bureaus
Identity theft

National Credit Union Administration

The NCUA charters and supervises federal credit unions. It insures deposits at federal credit
unions and many state credit unions.

Responsibility for:
Federal credit unions

National Technical Information Service

NTIS provides government banking and financial data files on magnetic tape, cartridge, CD-
ROM and hardcopy. FDIC products provided by NTIS include Call Reports, Survey of Deposits
(SOD), and Trust data.

Responsibility for:
Facilitate public access to Federal information
Maintain a permanent repository of unclassified scientific, technical, engineering, and business
information

Office of the Comptroller of the Currency:

The OCC charters, regulates, and supervises all national banks. (The word "National" appears in
the name of a national bank, or the initials "N.A." follow its name.) The OCC also supervises the
federal branches and agencies of foreign banks.
Responsibility for:
All national banks
Federal branches and agencies of foreign banks

Office of Thrift Supervision:

The OTS regulates all federal and many state-chartered thrift institutions, which include federal
savings banks and savings and loan associations. (Federally chartered savings associations have
the word "Federal" or the initials "FSB" or "FA" in their names

Responsibility for:
Savings banks
Savings and loan associations

Securities and Exchange Commission:

The SEC administers federal securities laws that protect investors in securities markets and
ensure that investors have access to disclosure of all material information concerning publicly
traded securities. The SEC also regulates firms engaged in the purchase or sale of securities,
people who provide investment advice, and investment companies.

Responsibility for:
Federal securities laws