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institution and intermediary. It is a bank that lends money and provides transactional,
savings, and money market accounts and that accepts time deposit.
Commercial banks represent the core of the credit for any national economy. In turn,
the credit is the engine that put in motion the financial flows that determine growth and
economic development of a nation. As a result, any efficiency in the activities of
commercial banks has special implications on the entire economy. That is why we
consider very useful to present an analysis of possibilities for evaluating the
performance in the commercial banks.
The management of every commercial bank must establish a system for assessing
investment performance which suits its circumstances and needs and this evaluation
must be done at consecutive intervals to ensure the achievement of the Bank's
investment objectives of hand; and to know the general direction of the behaviour of
investment activity in the past and therefore predictable as it in the future on the other
hand.
Because of the crucial role that commercial banks hold in the financial sector, this paper
focuses specifically on the managing core risks is banking sector as a vital segment of
the whole economy, without which no modern economy can exercise the role and own
functions.
The name bank derives from the Italian word banco "desk/bench", used during
the Renaissanceera by Florentine bankers, who used to make their transactions above
a desk covered by a green tablecloth.[2] However, traces of banking activity can be
found even in ancient times.
sales, distribution or brokerage, with or without advice, of: insurance, unit trusts
and similar financial products as a financial supermarket
[edit]Secured loan
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or
property) as collateral for the loan, which then becomes a secured debt owed to the
creditor who gives the loan. The debt is thus secured against the collateral in the
event that the borrower defaults, the creditor takes possession of the asset used as
collateral and may sell it to regain some or all of the amount originally lent to the
borrower, for example, foreclosure of a home. From the creditor's perspective this is a
category of debt in which a lender has been granted a portion of the bundle of rights to
specified property. If the sale of the collateral does not raise enough money to pay off
the debt, the creditor can often obtain a deficiency judgment against the borrower for
the remaining amount. The opposite of secured debt/loan is unsecured debt, which is
not connected to any specific piece of property and instead the creditor may only satisfy
the debt against the borrower rather than the borrower's collateral and the borrower.
A mortgage loan is a very common type of debt instrument, used to purchase real
estate. Under this arrangement, the money is used to purchase the property.
Commercial banks, however, are given security - a lien on the title to the house - until
the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have
the legal right to repossess the house and sell it, to recover sums owing to it.
Changes in banking laws now allow commercial banks to make home mortgage loans
on a more liberal basis than ever before. In acquiring mortgages on real estate, these
institutions follow two main practices. First, some of the banks maintain active and well-
organized departments whose primary function is to compete actively for real estate
loans. In areas lacking specialized real estate financial institutions, these banks become
the source for residential and farm mortgage loans. Second, the banks acquire
mortgages by simply purchasing them from mortgage bankers or dealers.
In addition, dealer service companies, which were originally used to obtain car loans for
permanent lenders such as commercial banks, wanted to broaden their activity beyond
their local area. In recent years, however, such companies have concentrated on
acquiring mobile home loans in volume for both commercial banks and savings and
loan associations. Service companies obtain these loans from retail dealers, usually on
a nonrecourse basis. Almost all bank/service company agreements contain a credit
insurance policy that protects the lender if the consumer defaults.
[edit]Unsecured loan
Unsecured loans are monetary loans that are not secured against the borrower's assets
(i.e., no collateral is involved). There are small businesss unsecured loans such as
credit cards and credit lines to large corporate credit lines. These may be available from
financial institutions under many different guises or marketing packages:
bank overdrafts
An overdraft occurs when money is withdrawn from a bank account and the available
balance goes below zero. In this situation the account is said to be "overdrawn". If there
is a prior agreement with the account provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit, then interest is normally charged at
the agreed rate. If the POSITIVE balance exceeds the agreed terms, then additional
fees may be charged and higher interest rates may apply.
corporate bonds
personal loans
Glass-Steagall Act
Mortgage constant
Commercial bank being the financial institution performs diverse types of functions. It
satisfies the financial needs of the sectors such as agriculture, industry, trade,
communication, etc. That means they play very significant role in a process of economic
social needs. The functions performed by banks are changing according to change in
time and recently they are becoming customer centric and widening their functions.
Generally the functions of commercial banks are divided into two categories viz. primary
functions and the secondary functions. The following chart simplifies the functions of
banks.
Commercial Banks performs various primary functions some of them are given below
1 Accepting Deposits : Commercial bank accepts various types of deposits from public
especially from its clients. It includes saving account deposits, recurring account
deposits, fixed deposits, etc. These deposits are payable after a certain time period
2 Making Advances : The commercial banks provide loans and advances of various
forms. It includes an over draft facility, cash credit, bill discounting, etc. They also give
demand and demand and term loans to all types of clients against proper security.
3 Credit creation :It is most significant function of the commercial banks. While
sanctioning a loan to a customer, a bank does not provide cash to the borrower Instead
it opens a deposit account from where the borrower can withdraw. In other words while
sanctioning a loan a bank automatically creates deposits. This is known as a credit
creation from commercial bank.
Along with the primary functions each commercial bank has to perform several
secondary functions too. It includes many agency functions or general utility functions.
The secondary functions of commercial banks can be divided into agency functions and
utility functions.
b) General Utility Functions : The general utility functions of the commercial banks
include
Swiss bank accounts can protect ones money from prying relatives, nasty
divorce settlements, lawsuits, and more. Some people just want a Swiss
bank account because of the allure and mystery often attached to Swiss
bank accounts, but whatever your reasons it is relatively easy to find a bank
and open an account.
Till the end of the last century, opening a Swiss bank account may have
included visiting the bank of your choice in person, paying hundreds of
dollars a year in fees, and putting down a few thousand dollars as an initial
deposit. As the Internet has allowed online banking to explode, you can now
open a bank account at thousands of banks around the world wherever you
are. Offshore bank accounts are available to anyone with money that needs
a place to be kept, Swiss banks have a lot of competition these days.
Sticking to trusted and insured banks is always the way to go. While most
banks today have secure online banking and security features in place, a
Swiss bank account comes built in with some of the strictest privacy laws in
the world.
Never wire money or deposit money to any site or bank without first
verifying that the bank or site is secure and licensed to do banking. Making
sure deposits are insured is also a good idea and be mindful that not all
banks may be insured or may have deposit insurance limits. Read reviews
and ask questions about the Swiss bank you choose before providing any
personal information. Once youve found a good Swiss bank and open an
account youll enjoy financial privacy at a level found only in Switzerland.
In 1934, the Swiss passed a law that made it a criminal offense for bankers
to reveal the identity of account holders. There are two reasons why this
protection was reinforced:
Nazi spies: The 1931 crisis led to intensified foreign exchange control in
Germany. Hitler promulgated a law whereby any German with foreign capital
was to be punished by death, and the Gestapo began espionage on Swiss
banks. When three Germans were put to death, the Swiss government was
convinced of the necessity to reinforce bank secrecy.
Pressure from the French: The 1932 Basler Handelsbank affair revealed that
over 2,000 members of the French elite had accounts in Switzerland. French
Leftists took advantage of this to denounce the austerity program of the
government. It called for legal authority over French accounts in
Switzerland, but to no avail.
Unlike American law where law enforcement agencies, the judicial system,
and private citizens can gain access to all kinds of financial information,
under Swiss law neither the banks officers or the its employees are allowed
to reveal any information, relative to any account to anyone, including the
Swiss government.
No private citizen or their legal representative can ever receive any type of
information about anyones Swiss bank account under any set of conditions.
That includes all types of legal proceedings that the Swiss classify as non-
criminal behavior.
There are some notable exceptions. The Swiss are bound by a treaty with
the US to reveal accounts connected with organized crime, drug trafficking
and insider trading. But the final say on revealing the identity of the account
holder is up to the Swiss authorities.
This is not true. The majority of our clients are not major manufacturers or
movie stars, but everyday people (business people, computer engineers,
civil servants, etc.). Swiss banks are no longer only for stars.
You can open a Swiss bank account with a deposit of only 5,000 Swiss
francs. We even offer accounts with no minimum balance.
Nothing could be more untrue. You can invest your money worldwide from
your account in Switzerland. Swiss bankers are among the best finance
managers in the world, so it comes as no surprise that they manage over
35% of offshore holdings.
This is not true. Most of the accounts that we offer can be opened by
correspondence as long as you comply with our opening procedures and
provide us with the necessary documents. What is more, your banking
relations can be conducted by correspondence, using the telephone, Internet
banking, bank transfer and credit cards. That said, we encourage our
customers to meet with their banker at least once in order to get acquainted
and see where their money is held.
This is not true. Most of the accounts we open dont charge a cent in annual
fees. Even if you would like additional services such as retained
correspondence or numbered banking relations, the annual fees are very
reasonable.
On the contrary. You can close your account in Switzerland whenever you
wish and without any restriction. You will pay no financial penalty. If need
be, you will just have to realize your investments. Contrary to many onshore
banking practices, your money is not held hostage by Swiss banks.
Not true! The vast majority of Swiss bank account holders are honest people
who want to keep their savings in a country renowned for its stability. Swiss
banks are extremely cautious regarding politicians who wish to open an
account and they systematically refuse to accept any money that is of
dubious origin or poorly founded.
Then there are the Swiss bank accounts youve heard about from the
movies. These are the numbered accounts, the ones with minimum balances
anywhere from $100,000 to $1 million. Its known as private banking and its
reserved for folks who have a lot of assets to manage and who demand a lot
of service. The services you receive at a private bank focus on private
counseling in aspects of wealth management including investments, tax
concerns, and estate planning.
The numbered accounts arent anonymous, but only a few people know the
name of the account holder and Swiss law forbids them from revealing it to
most anyone. They cant acknowledge that you have an account, give out
the name of a numbered account holder or reveal any information about the
transactions of any account holder.
If youve got the money and want to open such account, here are links to
the private banking departments of some well known Swiss banks:
July 2001
Would you be able to borrow (save) as much as you need, when you
need it, in a form that would be convenient for you?
The table below provides a June 2001 snapshot of the balance sheet for the
entire U.S. commercial banking industry. It shows that the bulk of banks'
sources of funds comes from deposits - checking, savings, money market
deposit accounts, and time certificates. The most common uses of these
funds are to make real estate and commercial and industrial loans.
Individual banks' asset and liability composition may vary widely from the
industry figures, because some institutions provide specialized or limited
banking services.
Banks Are Only One Type of Financial Intermediary
Finally, the U.S. financial services industry and financial markets are highly
developed. In recent decades, many new products and services have been
created, as well as new financial instruments and institutions. Today, in
addition to banks, there are several other important types of financial
intermediaries. These include savings institutions, credit unions, insurance
companies, mutual funds, pension funds, finance companies, and real estate
investment trusts (REITS).
However, besides these functions there are many other functions which these banks
perform. All these functions can be divided under the following heads:
1. Accepting deposits
2. Giving loans
3. Overdraft
5. Investment of Funds
6. Agency Functions
7. Miscellaneous Functions
1. Accepting Deposits:
The most important function of commercial banks is to accept deposits from the public.
Various sections of society, according to their needs and economic condition, deposit
their savings with the banks.
For example, fixed and low income group people deposit their savings in small amounts
from the points of view of security, income and saving promotion. On the other hand,
traders and businessmen deposit their savings in the banks for the convenience of
payment.
Therefore, keeping the needs and interests of various sections of society, banks
formulate various deposit schemes. Generally, there ire three types of deposits which are
as follows:
The depositors of such deposits can withdraw and deposit money whenever they desire.
Since banks have to keep the deposited amount of such accounts in cash always, they
carry either no interest or very low rate of interest. These deposits are called as Demand
Deposits because these can be demanded or withdrawn by the depositors at any time
they want.
Such deposit accounts are highly useful for traders and big business firms because they
have to make payments and accept payments many times in a day.
These are the deposits which are deposited for a definite period of time. This period is
generally not less than one year and, therefore, these are called as long term deposits.
These deposits cannot be withdrawn before the expiry of the stipulated time and,
therefore, these are also called as time deposits.
These deposits generally carry a higher rate of interest because banks can use these
deposits for a definite time without having the fear of being withdrawn.
In such deposits, money upto a certain limit can be deposited and withdrawn once or
twice in a week. On such deposits, the rate of interest is very less. As is evident from the
name of such deposits their main objective is to mobilise small savings in the form of
deposits. These deposits are generally done by salaried people and the people who have
fixed and less income.
2. Giving Loans:
Banks advance loans not only on the basis of the deposits of the public rather they also
advance loans on the basis of depositing the money in the accounts of borrowers. In
other words, they create loans out of deposits and deposits out of loans. This is called as
credit creation by commercial banks.
Modern banks give mostly secured loans for productive purposes. In other words, at the
time of advancing loans, they demand proper security or collateral. Generally, the value
of security or collateral is equal to the amount of loan. This is done mainly with a view to
recover the loan money by selling the security in the event of non-refund of the loan.
At limes, banks give loan on the basis of personal security also. Therefore, such loans are
called as unsecured loan. Banks generally give following types of loans and advances:
(i) Cash Credit:
In this type of credit scheme, banks advance loans to its customers on the basis of
bonds, inventories and other approved securities. Under this scheme, banks enter into
an agreement with its customers to which money can be withdrawn many times during a
year. Under this set up banks open accounts of their customers and deposit the loan
money. With this type of loan, credit is created.
These are such loans that can be recalled on demand by the banks. The entire loan
amount is paid in lump sum by crediting it to the loan account of the borrower, and thus
entire loan becomes chargeable to interest with immediate effect.
These loans may be given as personal loans, loans to finance working capital or as
priority sector advances. These are made against some security and entire loan amount
is transferred to the loan account of the borrower.
3. Over-Draft:
Banks advance loans to its customers upto a certain amount through over-drafts, if
there are no deposits in the current account. For this banks demand a security from the
customers and charge very high rate of interest.
This is the most prevalent and important method of advancing loans to the traders for
short-term purposes. Under this system, banks advance loans to the traders and
business firms by discounting their bills. In this way, businessmen get loans on the basis
of their bills of exchange before the time of their maturity.
5. Investment of Funds:
The banks invest their surplus funds in three types of securitiesGovernment securities,
other approved securities and other securities. Government securities include both,
central and state governments, such as treasury bills, national savings certificate etc.
Other securities include securities of state associated bodies like electricity boards,
housing boards, debentures of Land Development Banks units of UTI, shares of
Regional Rural banks etc.
6. Agency Functions:
Banks function in the form of agents and representatives of their customers. Customers
give their consent for performing such functions. The important functions of these types
are as follows:
(i) Banks collect cheques, drafts, bills of exchange and dividends of the shares for their
customers.
(ii) Banks make payment for their clients and at times accept the bills of exchange: of
their customers for which payment is made at the fixed time.
(iii) Banks pay insurance premium of their customers. Besides this, they also deposit
loan installments, income-tax, interest etc. as per directions.
(iv) Banks purchase and sell securities, shares and debentures on behalf of their
customers.
(v) Banks arrange to send money from one place to another for the convenience of their
customers.
7. Miscellaneous Functions:
Besides the functions mentioned above, banks perform many other functions of general
utility which are as follows:
(i) Banks make arrangement of lockers for the safe custody of valuable assets of their
customers such as gold, silver, legal documents etc.
(iii) Banks collect necessary and useful statistics relating to trade and industry.
(iv) For facilitating foreign trade, banks undertake to sell and purchase foreign
exchange.
(viii) During natural calamities, banks are highly useful in mobilizing funds and
donations.
(ix) Banks provide loans for consumer durables like Car, Air-conditioner, and Fridge etc.