Banking, particularly general banking is the core of financial system, the nerve center in modern economies. Bank is a financial institution that becomes the place for government own institutions, private enterprises, and individuals to put their money. Through extension of credit and provision of various services, bank satisfies the needed financing and smooth outs the payment mechanism for all economic sectors. The banking system in Indonesia had experienced a principle change especially after the promulgation of law number 7 of year 1992, and law number 10 of year 1998 which replaced law number 14 of year 1967 that was considered as not being able to accommodate problems and complexity derived from banking industry in line with rapid banking sector development following public needs for banking services besides strong influence of globalization.

The law number 7 of year 1992 had simplified the banking system with the abolition of the differences between operational functions of banks structurally. Regulations in law number 7 of year 1992 differentiate between general banks, development banks, saving banks, cooperative banks, and people credit banks. Banking business activities separated by functions actually are no longer suitable because basically all banks could perform general banking activities except people credit banks. That is why Indonesian banking system post-law number 7 knew only two kinds of banks from the functions point of view, i.e.: general banks and people credit banks. In addition, from the operational point of view, law number 7 had been introduced banking system based on profit sharing or Shariah banking system that could be carried out by general banks and people credIt banks as well.



Research Location: Bank Syariah Mandiri

Supervisor: Roy Sembel, PhD.

Accepted : 14 February 2001



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