Banking and Financial Institutions

• Banks are financial institutions that accept deposits and create credit.
• Lending can occur directly or indirectly through capital markets.
• Banks are heavily regulated due to their importance in financial stability.
• Most countries use fractional reserve banking, requiring banks to hold liquid assets equal to a portion of liabilities.
• Banks must meet minimum capital requirements based on international standards ("Basel Accords").
• Banks act as payment agents by managing checking/current accounts, paying checks, and collecting deposits.
• They facilitate payments via Automated Clearing House (ACH), telegraphic transfer, and ATMs.
• Banks borrow by accepting deposits (current and term) and issuing debt securities (banknotes, bonds).
• Banks lend by making advances, installment loans and investing in marketable debt securities.
• Banks provide payment services and are essential for businesses and individuals.
• Banks create new money through loans; new loans generate new deposits.
• Lending increases the money supply, while repayments decrease it.
• Bank activities include personal, corporate, investment banking, insurance, finance, and trading.

Channels

• Banks offer branch (in-person), ATM, mail, online, mobile, and telephone banking.
• Video banking offers remote transactions and consultations.
• Relationship managers serve private/business clients, while direct selling agents increase the customer base.

Products

• Retail banking products include savings accounts, fixed deposits, Certificates of Deposit, and Individual Retirement Accounts (IRAs).
• Certificates of Deposit (CDs) have fixed terms with fixed often higher interest rates than standard savings accounts.

Retail Banking

• Retail banking includes credit cards, debit cards, mortgages, mutual funds, personal loans, time deposits, ATM cards, cheque books and current accounts.

Business Banking

• Business banking includes business loans, capital raising, revolving credit, risk management (FX, interest rates, commodities, derivatives), term loans, cash management services and credit services.

Types of banking

• Retail banking deals with individuals and small businesses.
• Business banking provides services to mid-market businesses.
• Corporate banking is directed at large entities.
• Private banking offers wealth management to high-net-worth individuals and families.
• Investment banking relates to activities on the financial markets.

Types of banks

• Commercial banks are normal banks, distinct from investment banks.
• After the Great Depression, banks were required to focus either on banking or investment activities.
• Investment banks "underwrite" stock/bond issues, trade, manage investments, and advise on capital market activities (mergers, acquisitions).
• Central banks are government-owned and regulate commercial banks and cash interest rates.
• Central banks provide liquidity and act as the lender of last resort during crises.
• Islamic banks follow Islamic law, avoiding interest (forbidden).
• Instead, they earn profit (markup) and fees on financing facilities.
• Specialized banks support disadvantaged groups with short to medium term loans.
• They offer long-term, low-interest loans for specific sectors or disadvantaged categories.

Types of Credit

• Available credits include credit cards, loans, service credit, installment credit, and revolving credit.
• Loans enable cash acquisition, varying by amount, term, and conditions and can be repaid in full (lump sum) or installments, categorizing into secured and unsecured.
• Credit Cards are offered by institutions and stores for credit purchases without interest if paid within a period.
• Types of credit cards include departmental store cards , travel & entertainment cards (T&E Cards), and bank credit cards (Visa, MasterCard).
• Installment credit allows repayment through installments and differs from revolving credit, commonly used for furniture, automobiles, and goods with an initial down payment.

Examples of Installment Credit

• Home construction, land, home mortgage, automobile, home improvement, student, recreational vehicle/boat, vacation, and personal loans.
• Service credit covers monthly payments for utilities (gas, telephone, water, electricity), requiring a deposit and potential late fees and Revolving credit doesn't have a fixed number of installments.

Examples of Revolving Credit

• Home equity loans (HELOC) utilize home equity as collateral for major expenses.
• Line of Creditis an arrangement establishing a maximum loan balance.
• Collateral secures a loan, allowing the lender to seize property if payments stop including houses, cars, stocks and salary

The Banking Secrecy Law

• The banking secrecy law was passed in Lebanon in September 3, 1956. All banks and foreign branches are subject to professional secrecy.
• Managers/employees cannot reveal client information unless authorized by the client, their heirs, during bankruptcy, or in litigation.
• To ensure bank investment security, mutual communication among banks is allowed, under bank secrecy, about debtor accounts.
• Judiciary authorities can request information on illicit accumulation of wealth.

Stylized Balance Sheet of Commercial Bank

• Assets include cash, bank balance, investments, loans, and advances.
• Liabilities include capital, reserves, deposits, and borrowings.

Monetary policy

• Monetary policy controls the money supply to target inflation/interest rates for price stability and trust in currency.
• It involves actions by a central bank or committee that determine the growth of the money supply, which affects interest rates.
• Monetary policy is maintained by modifying interest rates, buying/selling government bonds, and changing bank reserve requirements.
• The Federal Reserve is in charge of the United States' monetary policy.
• Expansionary monetary policy increases the money supply to lower unemployment, boost borrowing/spending, and stimulate growth aka "easy monetary policy".
• Contractionary monetary policy slows or decreases money supply to control inflation, possibly slowing growth and increasing unemployment. An intervention by the Federal Reserve in the early 1980s to curb inflation resulted in a recession.