Group Banking and Chain Banking

Group Banking and Chain Banking

Group Banking. Group banking refers to the system of banking in which two or more banks are directly controlled by a corporation, an association or a business trust. The holding company may or may not be a banking company. Although each bank maintains its separate entity, h: :s business is managed by the holding company. This type of banking was popular in the U.S.A between 1925-29.
Group banking system combines some of the advantages of branch as well as unit banking system.

The main advantages are:

(a) Each member bank retains its separate entity and maintains its board of directors. But, at the same time, grouped banks enjoy the benefits of centralized administration.

(b) There is greater liquidity and mobility of resources. In case of crisis, funds can be transferred from other banks.

(c) There is economy of advertisement expenditure. There is also a common purchasing agency which leads to economy in purchases

(d) Services of experts can be made available t the member banks to manage their business efficiently.

(e) Common standardised accounting system improves the working of the member banks.

(f) Large-scale banking operations allow superior credit facilities.

The group banking also suffers from certain defects of its own :

(a) The control of member banks under the group baking system is less direct and more flexible than that under branch banking. Thus, effective supervision is not possible.

(b) Efficiency of the member banks is adversely affected by the management of the holding company which uses the banks as vehicles of manipulation and speculation.

(c) The failure of one bank has its adverse effects on other member banks. (d) The common purchasing agencies often indulge in corrupt practices.

Group Banking and Chain Banking

Chain banking. Chain Banking is another form of group banking. It refers to the system in which two or more banks are brought under comm on control by a device other than the holding company. The common management ma; he by a single person or a group of persons through stock ownership or otherwise. This type of banking system developed in the U.S.A. towards the middle of the 19th century and remained popular till the Great Depression of 1929. The advantages and disadvantages of chain banking system are more or less similar to those of group banking system.

Source: Money Banking and International Trade By DR. R.R. Paul Page-14-B

Group Banking and Chain Banking