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What are Bank Shares?

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  • Written By: A. Leverkuhn
  • Edited By: Andrew Jones
  • Last Modified Date: 31 October 2016
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Bank shares are the shares of a stock that represents the public offering of a bank. Banks are conventional businesses that are allowed to present an Initial Public Offering of stock shares, and to be publicly traded in many nations. The way that different countries treat bank shares shows some of the more general policy guidelines that world leaders set up to handle economic issues in their respective nations.

As a kind of business and financial sector stock, bank stocks and shares are in some ways a unique example of how the stock market in a nation interacts with public policy. The strange duality of bank shares is that private investors are buying into a business that itself buys and sells financial products and engages in the handling of money from depositors and other sources. Some investors shy away from bank shares and bank stock offerings because of the financial complexities involved.

A different class of investors has other questions about bank shares, mainly, whether they are a “good buy” at a particular point in time. A discussion about bank shares might lead to a debate on the effectiveness of banking leaders in general. Likewise, a depression of bank stocks may signal a banking crisis in a particular country.

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Modernized nations have often found that banking regulation has an intense effect on national economics, including the rise and fall of bank shares and other parts of a national stock market. For example, in the United States, a nationwide depression and financial crises led to specific rules about banks that economists study in the context of the last two centuries of finance policy. Other countries may also inspect how their banking rules have affected bank stocks and other national equities.

In the U.S., one of the specific rules created by past crises was that a commercial bank, one that took money from depositors, could not merge with an investment bank. Through the Glass-Steagal Act, this kind of duality was prohibited. The power to combine commercial and investment banking was re-created in 1999 with the Gramm-Leach-Bliley Financial Services Modernization Act. Today, many finance experts will debate whether it was the re-establishment of joint banking that contributed to subsequent financial crises.

Economists in all nations of the world can also use indicators like bank shares to analyze the risks of new threats to the public economy. One of these is hyperinflation, where some nations have seen massive and sudden currency devaluations that wrecked the collective lifestyle of large sections of the population. There have also been crises related to commodities, where large numbers of people were unable to buy food, largely because of volatility in prices for food commodities. Bank stocks and their shares can be one measure of the financial health of a national economy, and, in turn, a reflection on its finance policy as a whole.

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