Comparative analysis of banking systems of Kazakhstan and the USA

Table of contents: The Kazakh-American Free University Academic Journal №1 - 2010

Author: Omarkhan Dilara, Kazakh-American Free University, Kazakhstan

It is well known that the banking system is one of the most important and integral structures of a market economy. The organizational structures of the banking systems of various countries depend on many factors which include both historical and national traditions, the development stage of commodity-money relations in a country, the total level of economic growth, the regulation methods of currency circulation, etc. The uniqueness of the system is conditioned by national traditions and historical experience. Historically, national peculiarities of a banking system’s development are shown in the fact that in some countries there are no clear differences between commercial and investment banks, with some defining the latter as part of the stock market.

There are also significant differences in the control systems of commercial bank activities and banking system levels (one-, two- and three-level). Three groups of countries can be defined which differ in their methods of control structures and the place and role of Central Bank (CB) in these structures: countries where the surveillance is held by CB; countries where the surveillance is not held by CB, but other authorities; countries where the surveillance is held by CB together with other authorities.

The modern banking system of the Republic of Kazakhstan developed under difficult conditions. When Kazakhstan was one of the Soviet Union’s countries, the banking system was introduced as branches of the State Bank and the Industrial Bank, and later as branches of other banks. The State Bank, being a commission institute, at the same time was the center of short-term crediting supplying cash services to the economy. The combination of emission functions and functions of providing cash services to clients, a monopolistic allocation to one bank, made it an authority of state government and control [1].

The State Bank performed functions of both central and commercial banks. In this one-level banking system legal tenders were not divided between separate banks. Each bank had a right to use joint mass of legal tenders according to limits devoted by credit and cash plans. In the frame of the limits it didn’t have problems of liquidity. While credit distribution lending rates were not taken into account, and in the politics of central bank the indirect instruments were absent. The Central Bank totally depended on the government and was deprived of independence, therefore, was not able to make independent monetary policy. It fulfilled an alien function of crediting national economy and account service, and also committed existing deficits of state budget by means of monetary emission.

For countries with a developed economy, a two-level banking system is a common one. The same system started to be formed in Kazakhstan before the fall of the USSR. In 1987 according to a joint decree of CPSU CC and Soviet Ministries No. 821 it was decided to form a two-level banking system (central emission bank and other special banks). In spite of efforts taken to improve the credit system it was rather conservative. Established state special banks – Promstroibank, Agroprombank, Zhilsocbank, and Sberegatelny bank – in reality inherited many negative features peculiar to the system of that period when in the country only three banks functioned – Gosbank, Stroibank and Vneshtorgbank.

In 1988 after acceptance of the union law “About cooperation” on the share basis the first cooperation banks started to function which consequently founded the basis for formation of market relations in bank activity. This is the time when the first stages of the development of the Kazakhstan banking system started to evolve. The first such bank in Soviet Union was “Souyzbank” in Chimkent.

The significant fact which determined the further development direction of credit-banking system of Kazakhstan was the acceptance of new laws in April 1993: “About National Bank of Kazakhstan”, “”About banks and bank activity in Kazakhstan”, and “About currency regulation in Kazakhstan”. It was stipulated by a range of factors among which the priority importance was given to the formation of a sovereign country, acceptance of Kazakhstan in the world community, and the development of an independent national banking system.

The previous law “About banks and bank activity in Kazakh SSR” absolutely didn’t correspond to new economic and political realities, as it was too general, didn’t separate functions of central and commercial banks, and didn’t define their law status which led to the violation of existing law. The functions and tasks of Kazakhstan Gosbank, which were being formed according to its status of republic office of Gosbank USSR, in reality didn’t obtain enough rights to control surveillance over the activity of new commercial banks and using corresponding measures in necessary cases.

The Law “About National Bank of Kazakhstan” strengthened… the independence of the National Bank from government and other government authorities and made it obliged… to the Supreme Court of Kazakhstan and the President [2]. The Law “About banks and bank activities” clearly defined the functions, rights and liabilities of second-level banks and their legal status [3]. It was aimed to increase the responsibility of commercial banks, contribute to the regulation… system of the country, and its quick recovery and further development. The significant difference of the new Law was the establishment of higher requirements to the rules of bank formation according to international bank experience. It was stipulated by the necessity to increase the responsibility of banks to clients and the rush towards strong security of clients’ interests. The requirements to personal characteristics of bank administration were also increased.

At present time Kazakhstan has a two-level banking system represented by the National Bank and a range of state, private, joint stock, combined and foreign banks, or by so called banks of second-level. According to the Law “About National Bank of Kazakhstan” the National Bank of Kazakhstan is a central bank of Kazakhstan and represents the supreme level of banking system in the republic. The National Bank is a legal body possessing separate properties, which include money resources including its own gold currency resources and other material values. The resources forming the property are incomes received from bank activity, incomes from stock market, and subsidies from corresponding budgets [2].

Commercial banks are the oldest and the largest group of credit establishments performing most of the financial operations and services known in the practice of entrepreneurship in market economy. Authority authorized to control and monitoring of bank activity in our country is Agency of the Republic of Kazakhstan for regulation and monitoring financial market and financial organizations. The Agency is a state authority directly subordinate and reporting to the President of Kazakhstan, performing state regulations and monitoring financial market and financial organizations.

The core of the USA banking system is Federal Reserve System (FRS) which consists of 12 Federal Reserve banks and of large quantity of bank-members (more than 70 thousands). According to the Federal Reserve act of 1913, which founded modern banking system, all bank-members of FRS should contribute 6% of their own capitals as a share contribution to the original capital of Federal Reserve banks, and also to save in the last one 3% of the time deposit sum and from 7% to 13% of call deposit sum. Federal Reserve banks were obliged to have gold and legal tender reserves in the amount of 35% of deposits. Thus, liabilities of Federal Reserve banks consists of own capitals created at the cost of bank-members’ share contribution; banknote emissions; bank deposits represented reserves of FRS bank-members [4].

Building up the money reserves of commercial banks at the Federal Reserve banks was a factor of money economy. Besides the formation of FRS strengthened the centralization of the USA banking system and domination of large banks of financial tycoons. Since the end of 1915 to August 2007 ratio of FRS in the total amount of American commercial banks increased from 28% to 41%, and in total amount of deposits – from 48% to 78%. Although many banks are members of FRS, only small amount of large and the largest banks have utimate influence.

In August 1935 there was the law accepted which brought some organizational changes to FRS including further centralization of the USA banking system. All state banks with the deposits no less than 1 mln. dollars were obliged to get membership of FRS during a definite period of time. The rights of central authorities of FRS were significantly enlarged; at the head of FRS there was the Management Board which was entitled to define accounting rates of Federal Reserve banks, to change norms of obligatory reserves of bank-members, to establish the norms of financing for capital assets, to approve the directors boards chosen by reserve banks. Also there was created a special Committee for operations in the open market, all Federal Reserve banks should follow its instructions while performing the operation in the open market [5].

The resources of Federal Reserve banks are made up by means of banknote emissions – Federal Reserve tickets; deposit acceptance mainly from bank-members and from Treasury. An insignificant part of Federal Reserve Bank resources is made up from their own capitals (paid and additional). Since the governmentalization of gold resources in 1934 Federal Reserve banks stopped being keepers of gold resources of the country, but in their balance there were gold certificates which were paper signs of gold localized in state Treasury. The main active operation of Federal Reserve banks is purchasing of state capital assets. In comparison to that the leasing of federal bank to bank-members makes an insignificant amount. Federal Reserve banks are creditors of the country. But the resources contributed to state capital assets consequently are used in the corporation interests as are significantly spent by the government for payment of state orders and goods purchasing.

Apart from emission (Federal Reserve) banks, the USA banking system includes commercial banks, investment banks, mutually-saving banks, bankers’ houses.

According to their juridical status the commercial banks are divided into national and state. The former operate according to the federal laws and mandatory become members of FRS as a bank-member. The latter operate according to the laws of separate states and become members of FRS at their own preference [6]. Of all commercial banks some largest banks are outlined. Their resources grow faster than amounts of resources of other banks. In its turn from the list of the largest commercial banks a group of bank-giants can be pointed out – “Bank of America”, “First National City Bank of New-York”, “Chase Manhattan Bank”, “Manufactures Hanover trust Ko”, “Morgan Guaranty trust Ko”. These banks either manage strong financial industrial groups or act a big role there. They represent bank holdings created by means of joining large banks [4].

In the middle of XIX century in the USA banking system there appeared a special branch which specialization was to buy and sell capital assets. Further, till the crisis of 1929-1933, the border between investment and commercial banks was less visible, as in XX commercial bank also took active part in emission and placing capital assets and invested large amounts to these papers. After the crisis of 1929-1933 the activity fields of commercial and investment banks were officially (as per Law 1933) divided. Under modern conditions the investments of banks consist of 9/10 of capital assets of the USA Federal Government, states and local authorities. As for capital assets of industrial and other companies, their emission and placement is up to investment banks. Doing so investment banks widely use the resources loaned by commercial banks for investment to capital assets. The list of the largest investment banks includes: “First Boston Corporation”, “Laman brothers”, “Merryl Linch”, “Phinner and Smith” and etc. [6].

As it was mentioned at present time in Kazakhstan the banking system is two-level: First level – National Bank, Second level – commercial banks and financial – credit establishments. At present time (as of 1 January 2008) in Kazakhstan there are 35 banks of second level [7]. As opposed to Kazakhstan the USA banking system includes many thousands banks.

Despite the fact that today in the USA the total amount of bank is decreasing, it seems that the USA has decentralized banking system. It seems so because the fact that bank branches network in the USA is more restricted that in Kazakhstan. During a long period of time American banks, as opposed to those of Kazakhstan, had no right to create the branches. Later the right to create branches was given to them (according to the Laws of 1927 and 1933), but with significant restrictions. Therefore the banks can have branches only within a definite state, and in some states the banks cannot create their branches at all. Although the quantity of the bank branches dramatically increased of late (from 4 168 in 1945 to 56 513 in 2009), the total quantity of bank branches in the whole country is just 1.5 times as more as the quantity of all the banks [4].

However, behind the seeming atomism of Banking system in the USA the domination of small group of bank giants is hidden. The same situation is peculiar to Kazakhstan as well, in our country there are three large bank comprising the system (JSC “BTA”, JSC “Kazkommertsbank”, JSC “Halyk Bank”) [7].

One of the display of bank concentration in the USA is the so called local concentration, i.e. concentration of the main bank resources in several points .Thus the banks of 5 states (New-York, California, Illinois, Pennsylvania and Texas) obtained ½ resources of all American banks; only one New-York state had about 18% of all resources of banks-members of FRS. Thus local concentration in both countries is combined with the concentration of bank resources in several large banks.

The clear expression of bank concentration in the USA is merger of the banks. The quantity of such mergers dramatically increased after the World War First: during 1910-1920 there was 1 523 mergers which involved 2 968 banks, and during 1921-1931 – 5094 mergers involved 538 banks.

The form of canceled concentration of banks is the so called system of directors interlocking including mutual participation of one bank directors in management of other banks. In our country, there is rather interlocking of bank directorate with directors of affiliated companies, for example, insurance companies.

Another peculiarity of the USA banking system is the system of chain link. In this case the complete “chain” of banks cooperates with the temporary agreement about joint performance in some financial operations or with the permanent agreement about mutual support and mutual exchange of shares, performing the same credit policy and etc. In our country due to the unitarity such kind of measures are not possible.

An important form of invisible concentration of banks in the USA is the system of bank groups. It consists in combining several banks under the control of one joint stock company purchasing their shares and usually called “the community for shares holding” [6].

Both in the USA and in Kazakhstan we can observe in intense state interference into bank activity. Central emission banks of the country (Federal Reserve banks), as opposed to those in Kazakhstan, are not the property of the government. However they are ruled by the government and in general they contribute to the state capital assets. Federal Land Corporation of trade credit and export-importing bank are the property of the government. Both in Kazakhstan and in the USA as a result of financial crisis the requirements towards the obligatory resources and obligatory norms for banks of second-level and other financial-credit institutes were tightened.

Thus, in the analysis of forming the banking system of Kazakhstan and the USA there can be found both similarities and differences. In Kazakhstan and in the USA there is a two-level banking system, but in Kazakhstan the functions of central bank are performed by… National Bank, and in the USA it is up to Federal Reserve System (FRS) represented by 12 federal banks. Twelve Federal Reserve banks have main features (they are firstly central banks, secondly they are banks of bankers).

Management Board of FRS is a main authority of state policy towards the whole banking system. Seven member of the Board are assigned by the president with the approval of the Congress for the validity period of 14 years, but each year one member of the Board is replaced.

In Kazakhstan National Bank is a legal body in organizational and legal form of state establishment, which has independent balance and together with its branches, representatives and organizations makes one single structure. Authorized capital of National Bank of Kazakhstan belongs to the government.

Thus, in Kazakhstan as well as in the USA there is a two-level banking system. In Kazakhstan the supreme (first) level of banking system is represented by National Bank of Kazakhstan which is the central bank of the country. The lower (second) level is generally represented by commercial banks and some financial – credit institutes which have no serious influence on the market. Banks of the second-level in Kazakhstan are represented by the branches in each regional center and even in small inhabited settlements. In the USA the functions of the central bank are… represented by 12 federal banks. The second level is represented by many thousands of commercial banks and other financial-bank institutions, but in fact the banks of the second level have no right to create their branches, and can operate only on the territory of the state.


1. Seitkasimov G. Banking business. – Almaty: Economics, 2002

2. The Law of Kazakhstan dd. 30 March 1995 No.2155 “About National Bank of Kazakhstan”.

3. The Law of Kazakhstan “About banks and bank activity” dd. 31.08.1995 No. 2444.

4. Berstembaev R.K. Organization of state finance in some developed countries. – Almaty: Development institute of Kazakhstan, 2006.

5. Matuk Zh. Financial systems of developed countries. – M.: Finstatiinform, 2004.

6. Shevchenko L.M. Finance of foreign countries. – M.: VLADOS, 2009.

7. Annual report of Agency of the RK for regulation and surveillance of financial market and financial organizations.

Table of contents: The Kazakh-American Free University Academic Journal №1 - 2010

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