Lesson 2: Banking

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Types of Bank

L/O/G/O
 Central Bank
❖A central bank, reserve bank, or monetary authority is
the entity responsible for the monetary policy of a
country or of a group of member states. It is a bank that
can lend money to other banks in times of need.
❖ Primary responsibility: maintain the stability of the
national currency and money supply
❖More active duties include controlling subsidized-loan
interest rates and acting as a lender of last resort to the
banking sector during times of financial crisis.
 Functions of a central bank
❖implementing monetary policy
❖controlling the nation's entire money supply
❖the Government's banker and the bankers' bank
("lender of last resort")
❖managing the country's foreign exchange and gold
reserves and the Government's stock register
❖regulating and supervising the banking industry
❖setting the official interest rate – used to manage both
inflation and the country's exchange rate – and ensuring
that this rate takes effect via a variety of policy
mechanisms
 Naming of central banks
 * Many countries use the "Bank of Country" form
(e.g., Bank of England, Bank of Canada, Bank of
Russia).
 * Some are styled "national" banks, such as the
National Bank of Ukraine;
 * Central banks may incorporate the word "Central"
(e.g. European Central Bank, Central Bank of Ireland).
 * The word "Reserve" is also often included, such as the
Reserve Bank of Australia, Reserve Bank of India,
Reserve Bank of New Zealand, the South African
Reserve Bank, and U.S Federal Reserve System.
 Commercial Bank

❖A commercial bank is a type of financial

intermediary and a type of bank.
❖Commercial banking is also known as business
banking.
❖It is a bank that provides checking accounts,
savings accounts, and money market accounts and
that accepts time deposits
 - Commercial bank is the term used for a normal
bank to distinguish it from an investment bank.
 - It raises funds by collecting deposits from
businesses and consumers via checkable deposits,
savings deposits, and time (or term) deposits. It
makes loans to businesses and consumers. It also
buys corporate bonds and government bonds. Its
primary liabilities are deposits and primary assets
are loans and bonds.
 The role of commercial banks
❖processing of payments by TT, EFTPOS, and internet banking
- TT: Stands for Telegraphic Transfer, which is a method of
transferring funds electronically from one bank account to
another. It is often used for international wire transfers.
- EFTPOS: Stands for Electronic Funds Transfer at the Point of
Sale. It is a system that allows customers to make payments using
debit or credit cards at retail locations, usually through a card
reader or terminal.
❖issuing bank drafts and bank cheques
❖accepting money on term deposit lending money by overdraft,
installment loan, or other means
 The role of commercial banks
❖providing documentary and standby letter of credit, guarantees,
performance bonds, securities underwriting commitments and
other forms of off balance sheet exposures
❖safekeeping of documents and other items in safe deposit boxes
❖currency exchange, sale, distribution or brokerage, with or
without advice, of insurance, unit trusts and similar financial
products as a “financial supermarket”
 Investment Bank

 - An Investment Bank is a financial institution that

deals with raising capital, trading in securities and
managing corporate mergers and acquisitions.
 Investment banks profit from companies and
governments by raising money through issuing and
selling securities in the capital markets (both equity,
bond) and insuring bonds (selling credit default
swaps), as well as providing advice on transactions
such as mergers and acquisitions.
❖A majority of investment banks offer strategic
advisory services for mergers, acquisitions or other
financial services for clients, such as the trading of
derivatives, fixed income, foreign exchange,
commodity, and equity securities.
 Merchant bank

❖In banking, a merchant bank is a financial

institution primarily engaged in offering financial
services and advice to corporations and wealthy
individuals on how to use their money.
❖The term can also be used to describe the private
equity activities of banking.
❖A merchant bank refers to a banking company that
provides both financial and consultancy services to
clients. It has got expertise in international finance,
underwriting, and business loans.
 Merchant bank
❖It is also engaged in activities associated with the
promotion and development of industrial projects such
as:
• Loan syndication
• Portfolio management
• Underwriting of capital issues
• Project counseling
• Issue management
• Advisory services on mergers acquisitions and takeovers.
• Corporate restructuring
• Acceptance of bills
 Merchant bank
❖Merchant bank aims at fulfilling the advisory requirements
of big business ventures and high-net-worth individuals. It
provides financing services to multinational corporations
and also looks after the management of currency exchange
whenever the funds are transferred. It also assists
companies in issuing securities using private placements,
which do not require adherence to the legal formalities as
in the case of initial public offering (IPO).
 Commercial bank & Merchant
bank
❖Commercial banks are the banks that provide services
to the general public and companies as well.

❖On the other hand, merchant banks are similar to

investment banks as they do not provide regular
banking services, rather deals with commercial loans
and investment avenues.
 Commercial bank & Merchant
bank
❖ Commercial banks are less prone to risk, while
merchant banks are highly exposed to risk.
❖The role of a commercial bank resembles a financier.
On the contrary, the merchant banks act as a financial
advisor.
❖The commercial bank aims at fulfilling the needs of the
general public, whereas big business houses that are
operating in more than one nation and high net worth
individuals are catered by merchant banks.
 Universal Bank

❖A universal bank participates in many kinds of

banking activities and is both a Commercial bank
and an Investment bank.
❖ Historically there was a distinction drawn
between pure investment banks and commercial
banks.
❖ In the US, the regulatory barrier to the
combination of investment banks and commercial
banks has largely been removed, and a number of
universal banks have emerged in both
jurisdictions.
 Universal Bank

❖Universal Banking is a model of banking that

provides a full range of financial services,
including payment accounts, savings accounts,
lending, investment, and insurance services. This
model enables the bank to operate as a
comprehensive financial institution, catering to
the various financial needs of its customers. It is a
common model in some European countries.
 Building society
❖A building society is a financial institution,
owned by its members, that offers banking and
other financial services, especially mortgage
lending.
❖A Building Society is a non-profit or privately-
owned financial institution that specializes in
providing financial services related to mortgage
lending and savings. It raises funds in the form
of shares or deposits from its members and
lends them back to help members purchase
homes, while also paying interest on savings
accounts.
 Supranational bank
❖A supranational entity is formed by two or more central
governments to promote economic development for the
member countries. Supranational Institutions finance
their activities by issuing bond debt and are usually
considered part of the sub-sovereign debt market. Some
well-known examples of supranational institutions are
the World Bank, European Bank for Reconstruction and
Development; European Investment Bank; Asian
Development Bank, Inter-American Development Bank.
 Supranational bank
❖A supranational bank is a financial institution whose
operations have a wide-reaching impact that extends
beyond national borders. It is typically established to
promote cooperation and economic development among
member countries. These banks can provide financial
support for international projects and contribute to the
stabilization of global financial systems.
 Finance house

❖The Finance House provides you with the ability to

source Mortgages, Insurance and much more.
❖This facility can help you find the right deal for you
and in many cases you can apply online for the
product of your choice.
Personal Banking

L/O/G/O
 Transaction account- Current
account
❖A transactional account (NA: checking account or
chequing account, UK : current account or cheque
account) is a deposit account held at a bank or
other financial institution, for the purpose of
securely and quickly providing frequent access to
funds on demand, through a variety of different
channels. Because money is available on demand
these accounts are also referred to as demand
accounts or demand deposit accounts.
 Deposit account or time or
notice account
❖Deposit accounts, also known as time deposit
accounts or notice deposit accounts, are
types of accounts that require the depositor
to refrain from withdrawing funds before a
specific period or after providing prior notice.
❖Time Deposit Account: This is an account
where funds must be held for a fixed period,
and withdrawals are not allowed until the
term ends. These accounts typically offer
higher interest rates.
 Deposit account or time or
notice account
❖Notice Deposit Account: This account allows
the depositor to withdraw funds, but only
after giving a specified notice period, usually
ranging from a few days to several weeks.
❖These accounts generally offer higher interest
rates compared to regular transaction
accounts because the funds cannot be
immediately withdrawn.
 Personal account

❖A personal account is an account for use by

an individual for their own needs. It is a
relative term to differentiate the said
accounts from those accounts for corporate
or business use.
❖The term "personal account" may be used
generically for financial accounts at banks
and for service accounts such as accounts
with the phone company, or even for e-mail
accounts.
 Standing order

❖A standing order is an instruction a bank

account holder gives to their bank to pay a set
amount at regular intervals to another account.
The instruction is sometimes known as a
banker's order. They are typically used to pay
rent, mortgage or other fixed regular payments.
Because the amounts paid are fixed, a standing
order is not usually suitable for paying variable
bills such as credit card, or gas and electricity
bills.
❖Standing orders are available in the banking
systems of several countries, including Germany,
the United Kingdom, Barbados, the Republic of
Ireland, Netherlands, Russia and presumably many
others. In the United States, and other countries
where cheques are more popular than bank
transfers, a similar service is available, in which the
bank automatically mails a cheque to the specified
payee.
 Cheque

❖A cheque or check is a negotiable instrument

instructing a financial institution to pay a specific
amount of a specific currency from a specified
demand account held in the maker/depositor's
name with that institution. Both the maker and
payee may be natural persons or legal entities.
 Cheques generally contain
- place of issue - Counterfoil cuong’sec
- cheque number - Payee
- date of issue - Drawee (Drawer’s bank)
- payee - Drawer
- amount of currency
- Account number
- signature of the drawer
- Sort cord
- routing / account
number - Date
- fractional routing
number
Canadian cheque
British cheque
 Credit card

❖A credit card is part of a system of payments named

after the small plastic card issued to users of the
system. It is a card entitling its holder to buy goods
and services based on the holder's promise to pay
for these goods and services. The issuer of the card
grants a line of credit to the consumer (or the user)
from which the user can borrow money for payment
to a merchant or as a cash advance to the user.
 Debit card

 A debit card (also known as a bank card or check

card) is a plastic card which provides an alternative
payment method to cash when making purchases.
Functionally, it can be called an electronic check, as
the funds are withdrawn directly from either the bank
account (often referred to as a check card), or from
the remaining balance on the card. In some cases, the
cards are designed exclusively for use on the
Internet, and so there is no physical card.
 ATM card
 An ATM card (also known as a bank card,
client card, key card or cash card) is an
ISO/IEC 7810 card issued by a bank, credit
union or building society.It can be used:at an
ATM for deposits, withdrawals, account
information, and other types of transactions,
often through interbank networks
 Some ATM cards can also be used:at a
branch, as identification for in-person
transactionsat merchants, for EFTPOS (point
of sale) purchases
 (EFTPOS: electronic funds transfer at point of sale)
 Smart card

❖A smart card is in any pocket-sized card with

embedded integrated circuits which can process
data.

❖Microprocessor cards contain volatile memory and

microprocessor components.

❖Using smartcards also is a form of strong security

authentication for single sign-on within large
companies and organizations.