Chapter 17: Banks And Banking PDF

BUSINESS ENGLISH BILJANA NAUMOSKA-SARAKINSKA FALL TERM, 2024-2025  Chapter 17. Banks and banking  Banking  an industry that handles cash, credit, and other financial transactions;  one of the most important operators of any economy because it provides the liquidi...

BUSINESS ENGLISH BILJANA NAUMOSKA-SARAKINSKA FALL TERM, 2024-2025  Chapter 17. Banks and banking  Banking  an industry that handles cash, credit, and other financial transactions;  one of the most important operators of any economy because it provides the liquidity (cash) needed for families and businesses to invest for the future;  banking activities can be generally classified into the following types:  commercial banking,  retail banking,  investment banking,  central banking,  corporate banking, and, more recently,  online banking.  Chapter 17. Banks and banking  Banks  several different types of financial institutions, carrying out different kinds of business;  some are very large and perform many different functions;  others are more specialized;  some have operated for hundreds of years;  others have taken on new kinds of business quite recently.  Fun fact 1: the word bank comes from the Italian word banco, meaning a bench, since Italian merchants in the Renaissance made deals to borrow and lend money beside a bench.  Fun fact 2: before banks, the first institutions where money and valuables were stored in were temples;  for example, the inhabitants of ancient Athens kept their savings in the temples of the Acropolis, and the medieval Europeans often saved money in the monasteries.  Chapter 17. Banks and banking  Questions to think about?  Can we have a world without banks?  Where would people borrow money from?  What would they do with their savings?  Would they be able to borrow/save as much as they need, when they need it, in a form that would be convenient for them?  What risks might they face as a saver/borrower?  Chapter 17. Banks and banking  Function of banks  banks provide a safe place to store extra cash and credit;  they offer savings accounts, certificates of deposit and checking accounts;  they use these deposits to make loans - these include:  home mortgages,  business loans, and  car loans.  banks make loans to businesses, other financial institutions, individuals, and governments that need the funds for investments or other purposes;  interest rates provide the price signals for borrowers, lenders, and banks.  Chapter 17. Banks and banking  Banking = the business of accepting the deposits from the public for the purpose of investment and granting loans to the public;  through the process of taking deposits, making loans, and responding to interest rate signals, the banking system helps move funds from savers to borrowers in an efficient way.  Banks = institutions that allow this to take place;  banks distribute funds from savers to borrowers in an efficient manner. Chapter 17. Banks and banking  Chapter 17. Banks and banking  Types of banks/banking  Depending on the banking activities the banks provide and carry out, they may be classified into one of several types:  Central banking:  central banks maintain financial stability, so that a country’s economy operates properly;  they act as regulators of their country’s interest rates by controlling the amount of money in circulation, and buying and selling currencies;  they collect reserves and act as last-resort lenders if another bank gets into trouble;  they exist as a separate entity from all the other banks.  Central banks = represent the national government bank. Chapter 17. Banks and banking  Retail banking:  these are the banks we are all familiar with;  they take deposits from individuals, provide saving facilities and pay interest on these accounts;  they lend money to individuals, in the form of loans and overdrafts, and charge interest on the money they lend.  Retail banks deal with retail customers.  Retail banking = consumer banking or personal banking;  it is the visible face of banking to the general public, with bank branches located in great numbers in most major cities;  Services offered:  checking and savings accounts,  mortgages on residential and investment properties,  automobile financing (loans for new and used cars, as well as refinancing for existing car loans),  credit cards and lines of credit.  Retail banking brings in the customer deposits that make it possible for banks to make loans to their retail and business customers. Chapter 17. Banks and banking  Commercial banking:  commercial banks provide banking services to businesses, from small companies through to corporate banking directed at large corporations;  they help companies raise finance to expand their businesses and to maintain their cash flow by lending them money;  within commercial banks, there are also community banks, which are smaller than commercial banks, and they concentrate on the local market;  commercial banks play an important role in the financial system and the economy - they make the loans that enable businesses to grow and hire people = contributing to expansion of the economy.  Chapter 17. Banks and banking  Investment banking:  investment banks distribute and guarantee the sale of shares and bonds;  they trade securities on the financial markets and advise corporations on capital market activities such as mergers and acquisitions;  originally developed in the USA – they have now taken over many roles that were previously carried out by UK merchant banks;  employ investment bankers who help corporations, governments and other groups plan and manage large projects  saves their clients time and money by identifying risks associated with the project before the clients move forward.  businesses and institutions turn to investment banks for advice on how best to plan their development  investment bankers can tailor their recommendations to the present state of the economy;  unlike retail and commercial banking, investment banking is a very high risk form of banking;  if it goes well, however, it can make huge amounts of money  most larger commercial/retail banks also have an investment section in the company - the divisions work separately, and these very large banks are known as universal or conglomerate banks. Chapter 17. Banks and banking  Corporate banking:  also known as business banking;  refers to the aspect of banking that deals with corporate customers;  originally used in the United States to distinguish it from investment banking after the two activities were legally separated in 1933;  corporate banking and investment banking services have been offered for many years under the same umbrella by most banks in the United States and elsewhere;  it is a key profit center for most banks.  Chapter 17. Banks and banking  Online banking:  also known as internet banking, web banking, e-banking;  allows users to carry out financial transactions via the internet;  offerscustomers just about every service traditionally available through a local branch, including deposits and online bill payments;  it has, to some degree, become normal for many simple bank transactions; + advantages: convenience, speed efficiency; - disadvantages: users’ lack of experience (transactions not being carried out), security concerns (open to hacking, potential unauthorized access, logistics – connectivity issues = unsuccessful transactions), complex issues requiring F2F interaction.