00:00The international banking system is an enigma.
00:04There are more than 30,000 different banks worldwide,
00:07and they hold unbelievable amounts of assets.
00:10The top 10 banks alone account for roughly 25 trillion US dollars.
00:15Today, banking can seem very complex,
00:18but originally, the idea was to make life simpler.
00:2211th century Italy was the center of European trading.
00:25Merchants from all over the continent met to trade their goods,
00:29but there was one problem.
00:30Too many currencies in circulation.
00:33In Pisa, merchants had to deal with seven different types of coins
00:37and had to exchange their money constantly.
00:40This exchange business, which commonly took place outdoors on benches,
00:44is where we get the word bank from,
00:46from the word banco, Italian for bench.
00:49The dangers of traveling, counterfeit money,
00:52and the difficulty of getting a loan got people thinking.
00:55It was time for a new business model.
00:58Corn brokers started to give credit to businessmen,
01:01while Genoese merchants developed cashless payments.
01:04Networks of banks spread all over Europe,
01:07handing out credit even to the church or European kings.
01:11What about today?
01:12In a nutshell, banks are in the risk management business.
01:16This is a simplified version of the way it works.
01:19People keep their money in banks and receive a small amount of interest.
01:23The bank takes this money and lends it out at much higher interest rates.
01:28It's a calculated risk because some of the lenders will default on their credit.
01:33This process is essential for our economic system
01:36because it provides resources for people to buy things like houses
01:39or for industry to expand their businesses and grow.
01:43So banks take funds that are unused by savers
01:46and turn them into funds society can use to do stuff.
01:50Other sources of income for banks include accepting saving deposits,
01:54the credit card business, buying and selling currencies,
01:57custodian business, and cash management services.
02:00The main problem with banks nowadays is that a lot of them have abandoned
02:04their traditional role as providers of long-term financial products
02:08in favor of short-term gains that carry much higher risks.
02:12During the financial boom, most major banks adopted financial constructs
02:16that were barely comprehensible and did their own trading
02:19in a bid to make fast money and earn their executives and traders millions in bonuses.
02:24This was nothing short of gambling and damaged whole economies and societies.
02:29Like back in 2008, when banks like Lehman Brothers gave credit
02:33to basically anyone who wanted to buy a house
02:36and thereby put the bank in an extremely dangerous risk position.
02:39This led to the collapse of the housing market in the US and parts of Europe,
02:43causing stock prices to plummet, which eventually led to a global banking crisis
02:47and one of the largest financial crises in history.
02:51Hundreds of billions of dollars just evaporated.
02:55Millions of people lost their jobs and lots of money.
02:59Most of the world's major banks had to pay billions in fines
03:02and bankers became some of the least trusted professionals.
03:05The US government and the European Union had to put together huge bailout packages
03:10to purchase bad assets and stop the banks from going bankrupt.
03:14New regulations were put into force to govern the banking business.
03:17Compulsory bank emergency funds were enforced to absorb shocks
03:21in the event of another financial crisis.
03:23But other pieces of tough new legislation were successfully blocked by the banking lobby.
03:28Today, other models of providing financing are gaining ground fast.
03:32Like new investment banks that charge a yearly fee and do not get commissions on sales,
03:38thus providing the motivation to act in the best interests of their clients.
03:42Or credit unions, cooperative initiatives that were established in the 19th century
03:46to circumvent credit sharks.
03:48In a nutshell, they provide the same financial services as banks
03:52but focus on shared value rather than profit maximization.
03:56The self-proclaimed goal is to help members create opportunities like starting small businesses,
04:02expanding farms or building family homes, while investing back into communities.
04:07They are controlled by their members, who also elect the board of directors democratically.
04:13Worldwide, credit union systems vary significantly,
04:16ranging from a handful of members to organizations worth several billion US dollars
04:21and hundreds of thousands of members.
04:23The focus on benefits for their members impacts the risk credit unions are willing to take,
04:28which explains why credit unions, although also hurting,
04:31survived the last financial crisis way better than traditional banks.
04:36Not to forget the explosion of crowdfunding in recent years.
04:39Aside from making awesome video games possible,
04:42platforms arose that enable people to get loans from large groups of small investors,
04:47circumventing the bank as a middleman.
04:49But it also works for industry.
04:51Lots of new technology companies started out on Kickstarter or Indiegogo.
04:55The funding individual gets the satisfaction of being part of a bigger thing
04:59and can invest in ideas they believe in,
05:01while spreading the risk so widely that if the project fails, the damage is limited.
05:06And last but not least, microcredits.
05:08Lots of very small loans, mostly handed out in developing countries that help people escape poverty.
05:14People who were previously unable to get access to the money they needed to start a business
05:18because they weren't deemed worth the time.
05:21Nowadays, the granting of microcredits has evolved into a multi-billion dollar business.
05:26So, banking might not be up your street,
05:29but the bank's role of providing funds to people and businesses is crucial for our society and has to be done.
05:35Who will do it and how it will be done in the future is up for us to decide though.
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