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Chapter: 01An Overview of Banks & Their

Services

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What is a Bank?

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 financial institutions or “Thrift Institutions”.

Thrift Institutions A thrift institution is a financial institution formed

primarily to accept consumer deposits and make home mortgages. The primary types of thrift institutions are mutual banks, savings and loan associations, and credit unions. Thrift institutions often pay out more in dividends (interest) than do traditional financial institutions and have access to lower cost funds from organizations like Federal Home Loan Banks. Thrift institutions are more community-focused than other types of financial institutions and tend to focus more on consumers than businesses.

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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’s 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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Economic Function –Flow Of Funds

Surplus Units/Depositors/

SaversBank

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 could qualify for deposit insurance administered by the Federal Deposit Insurance Corporation (FDIC)”

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The Services Banks Offer PublicA. 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 Plans8. 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 Bank…Contd.

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2. Services

Considerations While Choosing a Bank…Contd.

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 Bank…Contd.

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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 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?

Weakening of the central bank’s ability to control the growth of the money supply & achieve the nation’s 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.