Introduction to Banking System PDF

Libyan International University Faculty of Business Administration Introduction to Banking System CHAPTER ONE 1 Presenter: Mr....

Libyan International University Faculty of Business Administration Introduction to Banking System CHAPTER ONE 1 Presenter: Mr. Tareq Almezughi [email protected] McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.  CONTENTS ▪ Historical of Bank. ▪ What is a Bank? ▪ Definition of Bank and their Objectives. ▪ Types of Bank Accounts. ▪ Importance of the Banking Sector. ▪ Definition of Central Banks and their Main Functions. ▪ The Financial System and Competing Financial-Service Institutions. ▪ Old and New Services Offered to the Public. ▪ Key Trends Affecting All Financial-Service Firms. ▪ Career Opportunities in Banking and Financial Services. ▪McGraw-Hill/Irwin Conclusion. 2 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-2  Intended Learning Outcomes ILOs In this class, the students should be able to: ▪ Understand the Meaning of Bank. ▪ The differences Between the types of Banks. ▪ Identify the main Role of the Financial System in the economic. ▪ Recognize the Financial Institutions-Service provider Competitors. McGraw-Hill/Irwin 3 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-3  Banca Monte dei Paschi di Siena McGraw-Hill/Irwin 4 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e  Banca Monte dei Paschi di Siena McGraw-Hill/Irwin 5 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e  HISTORICAL OF BANK ▪ Historically, banks have been recognized for the great range of financial services they offer. Bank service menus are quickly increasing today to include investment banking, insurance protection, financial planning, advice for merging companies, the sale of risk-management services to businesses and consumers, and many other creative financial products. McGraw-Hill/Irwin 7 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-7 McGraw-Hill/Irwin 8 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-8  1234 DEFINITIONS A Bank A bank Worldwide banks isis anythe is a Financial bank grant more OF BANKS institution offering of principal Institution source licensed to installment loans to receivecredit depositsdeposits (loanable subjectandto consumers make funds) loans. for millions withdrawal and (individuals and of individuals making loans of aand families) than any families and orfor commercial other financial- many nature. business units of service provider. government. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e  1 2 3 4 Worldwide banks A bank is a Financial A bank is any Bank is the ‫املصدر االساسي للفلوس‬ grant more Institution licensed to institution offering principal source of installment loans to receive deposits and deposits subject to credit (loanable consumers make loans. withdrawal and funds) for millions (individuals and making loans of a of individuals and families) than any commercial or families and for other financial- business nature. many units of service provider. government. ‫البنوك العامليه‬ ‫تعطي قروض للناس املستهلكه اكثر‬ ‫من اي مزود خدمات ماليه اخر‬ McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e  Financial intermediation Depositors Bank Borrowers McGraw-Hill/Irwin 11 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-11  Objectives of Banks 1 2 3 A Offer customers Lending money Offering financial Keep money safe to firms, advice and interest on for customers. customers and related financial deposits, helping household. services, such as to protect against insurance. money losing value against inflation. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e  Objectives of Banks 1 2 A A Offer customers Lending money Offering financial Keep money safe to firms, advice and interest on for customers. customers and related financial deposits, helping household. services, such as to protect against insurance. money losing value against inflation. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e  Objectives of Banks 1 2 3 A Offer customers Lending money Offering financial Keep money safe to firms, advice and interest on for customers. customers and related financial deposits, helping household. services, such as to protect against insurance. money losing value against inflation. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e  Objectives of Banks 1 2 3 4 Offer customers Lending money Offering financial Keep money safe to firms, advice and interest on for customers. customers and related financial deposits, helping household. services, such as to protect against insurance. money losing value against inflation. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e  Types of Bank Accounts McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e  Types of Bank Accounts Current account Savings account (time deposit account) Savings (checking account in the US) accounts typically have limits on This bank account allows easy the amount of money that can be and quick access to money. A withdrawn at once. Often banks customer can withdraw the require a certain notice of (e.g. money at a moment’s notice seven days) to pay money and will have features, such as requested. This enables banks to debit card and cash points. pay a higher interest rate as the bank needs less liquidity. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e  Types of Bank Accounts Current account Savings account (time deposit account) Savings (checking account in the US) accounts typically have limits on This bank account allows easy the amount of money that can be and quick access to money. A withdrawn at once. Often banks customer can withdraw the require a certain notice of (e.g. money at a moment’s notice seven days) to pay money and will have features, such as requested. This enables banks to debit card and cash points. pay a higher interest rate as the bank needs less liquidity. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e  Types of Bank Accounts Current account Savings account ‫حساب الوديعة‬ (time deposit account) Savings (checking account in the US) accounts typically have limits on This bank account allows easy the amount of money that can be and quick access to money. A withdrawn at once. Often banks customer can withdraw the require a certain notice of (e.g. money at a moment’s notice seven days) to pay money and will have features, such as requested. This enables banks to debit card and cash points. pay a higher interest rate as the bank needs less liquidity. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e  IMPORTANCE OF BANKING SECTOR ▪ Banking Sector can accelerate the economic growth. ▪ Provide loans. ▪ Improves standard of living. (Makes peoples lives better) ▪ Internet services (Online Payment). ▪ Withdrawal and Payment facilities. ▪ Analyze the risk and profitability of the companies and customers by providing feasibility studies. McGraw-Hill/Irwin 20 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-20  DEFINITION OF CENTRAL BANKS ▪ “The government’s bank, or the bankers’ bank” ▪ A central bank is a financial institution responsible for overseeing a country's monetary policy and regulating its financial system. ▪ Central banks are typically government-owned or -operated institutions and play a crucial role in maintaining economic stability and helping in economic growth. McGraw-Hill/Irwin 21 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-21  CENTRAL BANKS Although the name ‘central banks’ is the one often used to talk about the government’s bank, it is sometimes referred to in a handful of countries by other names some are as follows: McGraw-Hill/Irwin 22 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-22  The Federal Reserve McGraw-Hill/Irwin 23 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e  The Federal Reserve McGraw-Hill/Irwin 24 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e  Bank of Thailand McGraw-Hill/Irwin 25 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e  Bank of Thailand McGraw-Hill/Irwin 26 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e  People’s Bank of China McGraw-Hill/Irwin 27 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e  People’s Bank of China McGraw-Hill/Irwin 28 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e  Central Bank Vs. Commercial Bank Central Bank Commercial Investment Financial Bank Bank Institutions McGraw-Hill/Irwin 29 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-29 MAIN FUNCTIONS OF CENTRAL BANK ▪ Monetary Policy: Controlling the supply of money and interest rates to stabilize prices and promote economic growth. ▪ Currency Issuance: Printing and regulating the circulation of currency to maintain its integrity and value. ▪ Bank Regulation: Supervising and regulating commercial banks and financial institutions to ensure stability and prevent crises. ▪ Lender of Last Resort: Providing emergency liquidity to financial institutions facing solvency issues to prevent systemic collapses. ▪ Foreign Exchange Management: Managing foreign exchange reserves and intervening in currency markets to stabilize exchange rates and support trade. ▪ Payment System Oversight: Ensuring the smooth functioning of payment and McGraw-Hill/Irwin settlement systems to facilitate transactions and 30 © 2008 Themitigate risks. McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-30  Central bank McGraw-Hill/Irwin 31 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e  The Many Different Kinds of Financial-Service Firms Calling Themselves Banks Retail Banks These are your everyday banks, offering checking and savings accounts, loans, and other services to individuals and families. By Customer Focus Commercial Banks They deal with businesses, providing loans, managing accounts, and helping them grow. Investment Banks These banks work with big companies, helping them raise money by selling stocks and bonds. Wholesale Banks Similar to commercial banks, but they serve larger corporations and governments.  The Many Different Kinds of Financial-Service Firms Calling Themselves Banks Money Center Banks The "big guys" with headquarters in By Location important financial centers like New York or London. Community Banks Smaller banks focused on serving a specific local area and its residents.  The Many Different Kinds of Financial-Service Firms Calling Themselves Banks Savings Banks Focus on attracting deposits and giving interest on your savings. By Specialty Mortgage Banks Specialize in providing loans for buying a home. Cooperative Banks Owned by their members, typically focusing on serving local communities.  The Many Different Kinds of Financial-Service Firms Calling Themselves Banks National Banks Chartered by the federal government. Regulation and State Banks Chartered by individual states. Insurance Insured Banks Deposits are insured by government agencies, protecting your money. Member Banks Part of the Federal Reserve System, which helps regulate the banking industry.  The Many Different Kinds of Financial-Service Firms Calling Themselves Banks Limited-Purpose Banks Offer specific services, like credit cards or loans to high-risk borrowers. Others Bankers' Banks Provide services like check clearing and security trading to other banks. Minority Banks Focus on serving the financial needs of minority communities. Virtual Banks Operate entirely online, offering many of the same services as traditional banks. Universal Banks Offer a wide range of financial services, encompassing retail, commercial, and investment banking. CENTER BANKS VS. COMMUNITY BANKS ▪ Center banks ▫ Industry leader. ▫ Cover whole regions, nations. ▫ Offer the widest possible menu of financial services. ▫ Acquire smaller businesses. ▫ Face tough global competition. ▪ Community banks ▫ Much smaller ▫ Service local communities and towns ▫ Offer a narrower, but often more personalized, menu of financial services McGraw-Hill/Irwin 37 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-37  THE FINANCIAL SYSTEM AND COMPETING FINANCIAL-SERVICE INSTITUTIONS Roles of the Financial System ▫ The primary purpose of the financial system is to encourage saving and to transfer those savings to individuals and institutions in order to invest and make a profit. ▫ This process of encouraging savings and transforming savings into investment spending causes the economy to grow, new jobs to be created, and living standards to rise (increase). ▫ The financial system also provides a variety of supporting services: ▫ Payment services. (YOSSR PAY, IDFALI) ▫ Risk protection services. ▫ Liquidity services. McGraw-Hill/Irwin 38 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-38  THE FINANCIAL SYSTEM AND COMPETING FINANCIAL-SERVICE INSTITUTIONS (CONTINUED) Leading Competitors with Banks ▫ Money Market Funds ▫ Mutual Funds (Investment Companies) ▫ Hedge Funds. ▫ Security Brokers and Dealers. ▫ Financial Companies. ▫ Financial Holding Companies. ▫ Life and Property/Casualty Insurance Companies. McGraw-Hill/Irwin 39 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-39  EXHIBIT 1–2 COMPARATIVE SIZE BY INDUSTRY OF COMMERCIAL BANKS AND THEIR PRINCIPAL FINANCIAL- SERVICE COMPETITORS McGraw-Hill/Irwin 40 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-40  SERVICES BANKS AND MANY OF THEIR CLOSEST COMPETITORS OFFER THE PUBLIC Services Banks Have Offered for Centuries ▫ Carrying Out Currency Exchange ▫ Offering Savings Deposits ▫ Safekeeping of Valuables and Certification of Value ▫ Supporting Government Activities with Credit ▫ Offering Checking Accounts (Demand Deposits) ▫ Offering Trust Services. McGraw-Hill/Irwin 41 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-41  SERVICES BANKS AND MANY OF THEIR CLOSEST COMPETITORS OFFER THE PUBLIC (CONTINUED) Services Banks and Many of Their Financial-Service Competitors Began Offering in the Past Century ▫ Granting Consumer Loans ▫ Financial Advising ▫ Managing Cash ▫ Offering Equipment Leasing ▫ Making Project Capital Loans ▫ Managing Retirement Plans ▫ Dealing in Securities: Offering Security Brokerage and Investment Banking Services ▫ Offering Risk Management and Hedging Services McGraw-Hill/Irwin 42 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-42  TABLE 1–2 SOME OF THE LEADING FINANCIAL- SERVICE FIRMS AROUND THE GLOBE McGraw-Hill/Irwin 43 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-43 KEY TRENDS AFFECTING ALL FINANCIAL- SERVICE FIRMS – CRISIS, REFORM, AND CHANGE Rising Competition Government Deregulation and then Reregulation Crisis, Reform, and Change in Banking and Financial Services Instability of Interest Rate and Political Situation. Technological Change and Automation Geographic Expansion. McGraw-Hill/Irwin 44 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-44  CAREER OPPORTUNITIES IN BANKING AND FINANCIAL SERVICES What different kinds of professionals work inside financial firms? ▫ Loan Officer ▫ Credit Analyst ▫ Operations Manager ▫ Branch Manager ▫ Financial Data Analyst ▫ Auditing and Control Personnel ▫ Teller McGraw-Hill/Irwin 45 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-45  Q&A ▪ Feel free to ask any questions you have regarding today's lecture, by raising your hand. McGraw-Hill/Irwin 46 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-46 McGraw-Hill/Irwin 47 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Bank Management and Financial Services, 7/e 1-47