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Morshed 1
Chapter: 01
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What is a Bank?
Experts Opinions

A dealer in debts his own & of other people.
Geoffrey Crowther
A bank as an institution whose debts (bank deposits)
are widely accepted in settlement of other peoples
debts to each other.
R.S. Sayers
No person or body, corporate or otherwise, can be a
banker who does not (i) take deposit accounts, (ii)
take current accounts, (iii) issue & pay cheques, &
(iv) collect cheques, crossed & uncrossed, for his
customers.
Sir John Paget
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Definition of Bank (continued)
Definition in terms of

Services
Economic Function
Legal Existence

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Definition in terms of Services
A financial intermediary accepting
deposits & granting loans; offers the
widest menu of services of any financial
institutions.
Depository institutions offerings
checking accounts or commercial loans
but not both are called Nonbank banks
or Thrift Institutions.
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Economic Function
Flow Of Funds
Surplus Units/
Depositors/
Savers
Bank
Deficit Units/
Borrowers/
Users
Deposits
Borrows
Pays Interest
Receives Interest
Receives Interest
Banks Margin = Interest received from borrower Interest paid to the depositors
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Legal Existence
A bank as any institution that could
qualify for deposit insurance
administered by the FDIC
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The Services Banks Offer Public
A. Services Banks Have Offered Throughout
History:
1. Carrying out currency exchange.
2. Discounting commercial notes & making
business loans.
3. Offering savings deposits.
4. Safekeeping of valuables & certification of
value.
5. Supporting government activities with credit.
6. Offering checking accounts (Demand
deposits).
7. Offering trust services (managing financial
affairs/property, trustee for wills)
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The Services Banks Offer Public----Contd
B. Services Banks have Developed More
Recently:
1. Granting Consumer Loans.
2. Financial Advising.
3. Cash Management.
4. Offering Equipment Leasing.
5. Making Venture Capital Loans.
6. Selling Insurance.
7. Selling Retirement Plans
8. Security Brokerage.
9. Offering Mutual Funds & Annuities.
10. Offering Merchant Banking Services.


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The Services Banks Offer Public----Contd
C. Recent Trends Affecting All Banks:
1. Service Proliferation.
2. Rising Competition.
3. Deregulation.
4. Rising Funding Costs.
5. An Increasingly Interest-Sensitive mix of
Funds.
6. A Technological revolution.
7. Consolidation & geographical Expansion.
8. Globalization of banking.
9. Increased risk of failure.
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Considerations While Choosing a Bank
1. Features
2. Services
3. Fees
4. ATMs
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1. Features
Interest Rate (Annual percentage yield)
Convenience
FDIC membership
Size
Minimum deposit
Limitations
Availability of Funds
Considerations While Choosing a BankContd.
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2. Services


Considerations While Choosing a BankContd.
direct deposit
ATMs
banking by telephone (what can
you do over the phone, and when?)
online banking
credit cards
debit cards
overdraft protection
canceled checks (included with
monthly statements?)
loans and mortgages
stock and mutual fund trading
retirement planning services
small business services
access to international money
markets
copies of previous monthly
statements
deposit slips and other slips
phone support
talking to a teller in person
debit card fees
traveler's checks
loan application processing
safe deposit box rental
stop payment
wire transfer
money order
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3. Fees
Maintenance fees
Low-balance penalty
ATM surcharges, "Foreign" ATM fees
Returned check
Bounced check
Overdraft Protection
Check printing
Per-check charges
Cancelled check return fees
Closed account
Considerations While Choosing a BankContd.
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4. ATMs
Once you have an account, balance your
checkbook on a regular basis, to make sure that
the bank hasn't made any errors and so that you
know how much you have in your account. Also
understand every fee you are charged, and
complain about any that you don't agree with. Take
a look at any inserts that accompany your monthly
statement, because banks are required to disclose
any fee changes, and that's where you'll find out
about them.
Considerations While Choosing a BankContd.
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Are Banks Dying?
Weaken the central banks ability to control
the growth of the money supply & achieve the
nations economic goals.
Damage those customers, mainly small
businesses & families, who rely most heavily
on banks for loans & other financial services.
Make banking services less conveniently
available to customers as bank offices are
consolidated & closed.