Académique Documents
Professionnel Documents
Culture Documents
An Overview of Banks and the Financial Services Sector Bank And Other Financial Service Competitor
Definition History Type Functions Services offered Challenges faced
CHAPTER TWO
What is a Bank?
1-2
A bank can be defined in terms of 1) Economic function Transferring funds from savers to borrowers (financial intermediaries) Paying for goods and services 2) Services it offers Checking accounts, savings plans and loans But, expanded to security underwriting, insurance protection, merging companies etc. 3) legal basis for existence (regulations) A bank is any business offering deposits subject to withdrawal on demand and making loans of a commercial or business nature
2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
McGraw-Hill/Irwin
1-3
Commercial Banks: Sell deposits and make loans to businesses and individuals Savings Banks: Attract savings deposits and make loans to individuals and families Cooperative Banks: Help farmers, ranchers, and consumers acquire goods and services Mortgage Banks: Provide mortgage loans on new homes and housing projects
McGraw-Hill/Irwin
1-4
Banks: Underwrite issues of new securities by their customers (IPO) Banks: Supply both debt and equity capital to businesses
McGraw-Hill/Irwin
1-5
Banks: Commercial banks present more than one nation Banks: Large commercial banks serving corporations and governments Banks: Smaller banks serving primarily households and small businesses
Bankers
McGraw-Hill/Irwin
1-6
Minority
Banks: Function under federal charter (NCBs) state Banks: Function under charter of the
Insured
McGraw-Hill/Irwin
1-7
McGraw-Hill/Irwin
1-8
McGraw-Hill/Irwin
1-9
Open-end
Varies
Leasing Leasing means equipment financing. It is a contract between two parties, lessor and lessee, that conveys the right of possession and use of specific asset to the lessee for specific span of time and in return lessee pays predetermined rentals to the lessor.
McGraw-Hill/Irwin
1-10
McGraw-Hill/Irwin
1-11
The main bank relationship is a long-term relationship between a firm and a particular bank from which the firm obtains its borrowings.
The term main bank system thus refers to a system of corporate financing, monitoring and governance.
Universal Bank These are banks, which provide both banking as well as nonbanking financial services German banking is the forerunner of this concept
McGraw-Hill/Irwin
1-12
International Banking
The term international banking has been used to refer to the cross-border and cross-currency aspects of banking business.
Multinational banking The term, multinational banking, has been referred to the location and ownership of banking facilities in a large number of countries and geographic regions.
McGraw-Hill/Irwin
1-13
Savings and Loans Associations: Sell savings deposits and grant home mortgage loans to individuals and families Savings Banks: Sell savings deposits, grant consumer and home mortgage loans, and invest in high-quality securities>under charters of the govt. Credit Unions: Collect deposits from and make loans to their members as nonprofit associations of individuals sharing a common bond (same employer)
McGraw-Hill/Irwin
1-14
Market Funds:Collect short term, liquid funds from individuals and institutions>by buying shares in the fund>invest the collected fund in quality securities of short duration
Mutual
Funds (Investment Companies):Sell shares to the public representing an interest in the value of and returns from a professionally managed pool of stocks
Hedge
McGraw-Hill/Irwin
1-15
securities
Companies:Offer loan to commercial enterprises and to consumers using funds borrowed from in the open market or from other financial institutions
Financial
Holding Companies:Credit card company, insurance and finance companies and security broker etc. under one corporate umbrella
Life
1-16
Exchange of Currency: One of the first service offered by banks Commercial Notes and Loans: Discounting of debts (accounts receivable)>Also provided by finance and insurance companies Offering Savings Deposits: Raising funds>Greece bankers and ship owners Safekeeping of Valuables: Goldsmiths and their certificates
McGraw-Hill/Irwin
1-17
Accounts: Demand deposit service> Current Account>Also provided by savings association, credit unions, securities firms.
Trust
Services: Managing the financial affairs and property of individuals and business firms in return for a fee
McGraw-Hill/Irwin
1-18
Consumer Loans: Financial Advice: Use of credit and investment of funds Cash Management: Collects cash, make payments and invest the surplus in short term interest bearing assets. Equipment Leasing: Rent to the customer Venture Capital Loans: Finance the start up cost of high tech new ventures Selling Insurance Products: US case>Bank vs Ins. Co. Security Underwriting and Brokerage Services: Banks as financial department stores: US Case Glass-Steagall Act 1933>>Gramm-Leach-Bliley Act1999 Mutual Funds and Annuities: Merchant Banking Services: Temporary purchase of corporate stock> to aid launching of new business
2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
McGraw-Hill/Irwin
1-19
Service Proliferation: Non-interest service fees vs. interest earned on loans Rising Competition: Deregulation Government Deregulation: Broadening the service field Increased Interest Rate Sensitivity: of customers Technological Change: ATM, cell phone, POS Consolidation and Geographic Expansion E-Banking and E-Commerce: Operating costs Convergence: crossing industry line to broaden service base Globalization: Increased Risk of Poor Performance and Failure
2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
McGraw-Hill/Irwin
1-20
Assets ($Millions) Citigroup (USA) 1,097,000 Mizuho Financial Group (Japan) 945,688 UBS (Switzerland) 825,000 Sumitomo Mitsui Fin. (Japan) 802,674 Deutsche Bank (Germany) 794,984 Bank of Tokyo-Mitsubishi (Japan) 789,495
McGraw-Hill/Irwin
Pertinent Websites The Banker Federal Reserve Wall Street Journal Bangladesh Bank www.thebanker.com www.federalreserve.gov www.wsj.com
1-21
www.bangladesh-bank.org
McGraw-Hill/Irwin
1-22
Review Questions: What are the services offered by banks 2000 years ago? What was the source of funds to the earliest bankers? Why banking faced religious opposition in the Middle Ages ? How it was resolved? What led to the development of banking in the 15th to 17th century? Why in the early Europe people used to deposit wealth in the goldsmiths shops? How money was developed? What is certification of value services? How financial service competitors, such as insurance companies came into existence? When and where first Mutual Funds emerged? How mutual funds, money market funds, hedge funds attracted bank deposits?
McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.