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Chapter: 01
An Overview ofBanks & TheirServices
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What is a Bank?
A financial intermediary acceptingdeposits & granting loans; offers thewidest menu of services of any financialinstitutions.
Depository institutions offeringschecking accounts or commercial loansbut not both are called Nonbank banksor “Thrift Institutions”.
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What is a Bank?Expert’s 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 people’sdebts to each other”.
R.S. Sayers
“No person or body, corporate or otherwise, can be abanker who does not (i) take deposit accounts, (ii)take current accounts, (iii) issue & pay cheques, &(iv) collect cheques, crossed & uncrossed, for hiscustomers”.
Sir John Paget
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Definition of Bank (continued)
Definition in terms of –
Services
Economic Function
Legal Existence
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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
Bank’s Margin = Interest received from borrower – Interest paid to the depositors
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Legal Existence
“A bank as any institution that couldqualify for deposit insuranceadministered by the FDIC”
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The Services Banks Offer Public
A.Services Banks Have Offered ThroughoutHistory:
1.Carrying out currency exchange.
2.Discounting commercial notes & makingbusiness loans.
3.Offering savings deposits.
4.Safekeeping of valuables & certification ofvalue.
5.Supporting government activities with credit.
6.Offering checking accounts (Demanddeposits).
7.Offering trust services (managing financialaffairs/property, trustee for wills)
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The Services Banks Offer Public----Contd
B.Services Banks have Developed MoreRecently:
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 ofFunds.
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 Bank…Contd.
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2.Services
Considerations While Choosing a Bank…Contd.
direct deposit
ATMs
banking by telephone (what canyou do over the phone, and when?)
online banking
credit cards
debit cards
overdraft protection
canceled checks (included withmonthly statements?)
loans and mortgages
stock and mutual fund trading
retirement planning services
small business services
access to international moneymarkets
copies of previous monthlystatements
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 Bank…Contd.
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4.ATMs
Once you have an account, balance yourcheckbook on a regular basis, to make sure thatthe bank hasn't made any errors and so that youknow how much you have in your account. Alsounderstand every fee you are charged, andcomplain about any that you don't agree with. Takea look at any inserts that accompany your monthlystatement, because banks are required to discloseany fee changes, and that's where you'll find outabout them.
Considerations While Choosing a Bank…Contd.
Leading Competitors with Banks
Saving Associations
Credit Unions
Fringe Banks
Money Market Funds
Mutual Funds
Hedge Funds
Security Brokers and dealers
Investment Banks
Finance Companies
Financial Holding Companies
Life and Property/casualty insurance companies
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Types of Banks
Commercial Banks
Money Center Banks
Community Banks
Saving Banks
Cooperative Banks
Mortgage Banks
Investment Banks
Merchant Banks
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Types of Banks
International Banks
Wholesale Banks
Retail Banks
Affiliated Banks
Virtual Banks
Fringe Banks
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Are Banks Dying?
Weaken the central bank’s ability to controlthe growth of the money supply & achieve thenation’s economic goals.
Damage those customers, mainly smallbusinesses & families, who rely most heavilyon banks for loans & other financial services.
Make banking services less convenientlyavailable to customers as bank offices areconsolidated & closed.