18. The Role and Importance of Retail Banks Flashcards
What are the main characteristics of a Proprietary organisation? (3)
- A company owned by SHAREHOLDERS
- Profits are distributed as DIVIDENDS
- Decisions are made at SHAREHOLDERS MEETINGS
Most large financial institutions are Proprietary
Banks are systematically important institutions. What does this mean?
Their failure would greatly impact the economy and wider society.
This means they hold greater responsibility
What are the main characteristics of a mutual organisation? (
- NOT A COMPANY
- Owned by MEMBERS
- Decisions are made at GENERAL MEETINGS
Mainly Building Societies, Friendly Societies & Credit Unions
What is the difference between retail and wholesale banking?
Retail = smaller, users are individuals and SMEs
Wholesale = much larger, users are large companies, the government or other financial institutions
What are financial intermediaries? What are the most common examples of them?
Those who borrow money from the SURPLUS section of the economy to lend to the DEFECIT sector.
Move money between the haves and have nots.
Most common = banks & building societies
What are three key things that a bank’s products & services offer their customers? (3)
- Convenience
- eg current account for making payments - Means of achieving difficult objectives
- eg mortgages - Protection from risk’
- eg insurance products
Why do we need Intermediaries? (4)
- GEOGRAPHIC LOCATION
- depositors and borrowers are geographically spread, intermediaries enable them to find each other - AGGREGATION
- retail deposits tend to be small & loans/mortgages large. Intermediaries aggregate(combine) funds. - MATURITY TRANSFORMATION
- borrowers may need funds for longer than depositor is willing to part with them. Intermediaries use funds from different sources to combat this. - RISK TRANSFORMATION
- Depositors have less risk because their money is spread across lots of different borrowers. If one defaults, their money isn’t lost
What do Building Societies do with their profits?
Use them to make interest rates more preferable for customers, e.g. lower loan rates or increase savings rates
What are finance companies? Why do people sometimes use them instead of banks?
The can either be part of a bank or independent.
They offer traditional loan facilities (eg for holidays/furniture) and HIRE PURCHASE AGREEMENTS (eg car leases) which is when the ownership of an item is not transferred until after a loan is paid off.
People use them because they are convenient and offered at point of sale.
What are credit unions?
Financial CO-OPERATIVES run for the BENEFIT OF MEMBERS who are all linked together by a COMMON BOND (eg location or belonging to the same club/organisation)
What sorts of location are credit unions commonly founds? Why?
Poorer areas.
They help to combat financial exclusion but offering products and services to those outside the mainstream.
Their simple savings and loans products provide an alternative to using loan sharks.
In which ways have credit unions adapted to remain competitive within today’s financial landscape?
- Offering additional services e.g. basic bank accounts, insurance, mortgages
- Relaxed membership criteria
Who runs credit unions?
Volunteers elected by the members
What happens to any profits made by credit unions?
Either get passed on to the savers or put back into the credit union for its development
What is the greatest benefit/attraction of using a credit union?
All savings & loans balances are backed by LIFE ASSURANCE
On death, loan balances get paid off and lump sum payments can be made based on the amount of savings deposited and the age at which they were deposited.
What types of services do Challenger Banks offer?
Same as most retail banks, they just stay competitive by focusing on digital delivery methods
What is meant by a Non-bank funder? What do they do?
Alternative financiers/fintechs.
Seek opportunities to be market disrupters by developing or adapting technology. Less about designing new products, designed to be more customer friendly/efficient in delivery - quicker sign-up processes and no credit scoring.
Following on from the financial crisis in 2008, what was the main finding of the Vickers Report published in 2011?
Banks were taking on too much risk after being bailed out by the government during the financial crisis.
Banks should ring-fence retail banking operations and keep these separate from riskier investment banking operations.
What Act put the Vickers Report recommendations into Law and in what year? What were the legal requirements implemented by the Act? Who do they apply do? What is their aim?
The Financial Services (Banking Reform) Act 2013
who = banks holding deposits > £25 billion
what = protects ring-fenced bodies from shocks
aim = minimising disruption to core services.
Core services =
1. Accepting deposits/payments into accounts
2. Withdrawing money/making payments from accounts
3. Overdraft facilities
What would be the effects on people if core banking services stopped because of a bank collapse? (5)
- Economic decline/significant UNEMPLOYMENT
- FIRMS LOSE ACCESS TO BANK LOANS - can’t make further investments
- OTHER BANKS BECOME LESS WILLING TO LEND MONEY
- SAVERS W/ >£85K could lose unprotected funds
- LOSS OF CONSUMER TRUST
What is Corporate Social Responsibility (CSR)? What is this also known as? What does it help companies to do?
the DELIBERATE INCLUSION of PUBLIC INTEREST into an organisation’s:
- MISSION
- VALUES
- DECISION MAKING
aka Corporate Citizenship
Helps companies to be aware of their impact on all aspects of society including:
- ECONOMIC
- SOCIAL
- ENVIRONMENTAL
What is Triple Bottom Line (TBL)? What are it’s 3 P’s?
Measures a firm’s commitment to Corporate Social Responsibility.
Examines the firm’s positive and negative impact within 3 key performance areas:
- PEOPLE
- employees, families, customers, suppliers, communities & anyone else effected by the firm - PLANET
- natural resources, carbon footprint, toxic materials, waste removal, reforestation/deforestation - PROFIT
- local/national/international economy
- creating employment, generating innovation, paying taxes, wealth creation etc
What is the main difficulty of using the Triple Bottom Line (TBL)? What can be done instead of using this?
It’s hard to quantify social and environmental impact
Companies should publish their Corporate Social Responsibility Policy & stakeholders should be the judge of its effectiveness
What is the purpose of the UN Principles for Responsible Banking? What are the 6 UN Principles? (6)
They provide the banking industry with a single framework that embeds SUSTAINABILITY AT ALL LEVELS across the business. Banks must SET TARGETS in line with SOCIETY’S GOALS & REPORT ON IMPACT AND CONTRIBUTIONS.
- ALIGNMENT
- of business strategy with individual’s needs & society’s goals - IMPACT & TARGET SETTING
- increase positive/decrease negative impact on people/environment
- publish targets in areas of greatest impact - CLIENTS & CUSTOMERS
- encourage sustainable practices
- enable activities that create a shared prosperity - STAKEHOLDERS
- consult, engage & partner with them to achieve society’s goals - GOVERNANCE & CULTURE
- effective governance & culture of responsible banking - TRANSPARANCY & ACCOUNTABILITY
- periodically review implementation of the principles.
- be transparent & accountable about positive and negative impacts
What are the Equator Principles? Who do they apply to?
What’s an EPFI?
How have the principles helped? (2)
Risk management framework used by financial institutions for assessing/managing ENVIRONMENTAL/SOCIAL RISK IN PROJECTS
Applies to the the following types of products/services globally:
1. Project Finance Advisory Services
2. Project Finance
3. Project-related Corporate Loans
4. Bridge Loans
All UK banks are EPFIs = Equator Principles Financial Institutions.
Helped:
- Increased awareness re: social responsibility
- e.g. labour standards, indigenous people’s standard, consulting local communities - Development of social/environmental risk management systems within member banks
What were the two key changes that the Disability Discrimination Act (2005) brought into force? (2)
- ILLEGAL to TREAT DISABLED PEOPLE LESS FAVOURABLY for reasons related to their disability
- Must make REASONABLE ADJUSTMENTS so that disabled people can use a company’s services.
- not just ramps etc, must consider ALL TYPES OF DISABILITIES ACROSS ALL DELIVERY CHANNELS
The Equality Act (2010) introduced several new concepts which where not originally covered by the Disability Discrimination Act (2005). What were these? (5)
- Protected characteristics
- Associative Discrimination
- being associated with someone with protected characteristic - Perceptive Discrimination
- based on a characteristic you think they have, even if they don’t - Indirect Discrimination
- policy applies to everyone but has a greater effect on disabled person - Harassment
THINK: HAPPI
How does The Equality Act (2010) define harrassment?
Unwanted conduct related to a protected characteristic where the purpose/effect is VIOLATING DIGNITY or CREATING A INTIMIDATING/HOSTILE/DEGRADING/HUMILIATING or OFFENSIVE environment
Under The Equality Act (2010), what are the protected characteristics? (7)
- Age
- Disability
- Gender /Reassignment
- Sexual Orientation / Martial Status
- Race
- Pregnancy/Maternity
- Religious Beliefs
THINK: DR GRASP
What do the laws implements under the Consumer Protection from Unfair Trading Regulations (2008) cover? (4) Who is responsible for enforcing these?
- Pricing
- Descriptions of products/services - must be accurate regardless of whether they’re written (APR on poster), illustrated (packaging) or oral (sales pitch).
- Contracts between buyers & sellers
- Competition between businesses
Enforced by The Chartered Trading Standards Institute
Under the Consumer Rights Act (2015), what specific rights do consumers have with regards to digital content?
If they have bought digital content (eg. app/software) or if digital content has been provided alongside another product and the content then goes on to damage their device, the SUPPLIER MUST PAY FOR THE DAMAGE OR COMPENSATE
Under the Consumer Rights Act (2015), what would make a term of contract qualify as ‘unfair’?
Unfair = If it causes SIGNIFICANT IMBALANCE OF RIGHTS/OBLIGATIONS to the DETRIMENT OF THE CONSUMER
Under the Consumer Rights Act (2015), what factors need to be taken into account to determine whether a term is ‘fair’? (3)
- NATURE of the SUBJECT MATTER of the contract
- ALL EXISTING CIRCUMSTANCES when the term was agreed
- ALL OTHER TERMS that the term itself depends upon (either within the same or different contract)
Under the Consumer Rights Act (2015), when might the right to an ‘assessment of fairness’ not be granted? (2)
If the TERM IS TRANSPARENT
- in plain language/intelligible
AND
the TERM IS PROMINENT
- presented in an obvious way which would make the average customer aware
e.g. the price/subject matter must NOT BE IN THE SMALL PRINT
Do terms of a contract need to have been negotiated for fairness rules to apply under the Consumer Rights Act (2015)?
No, the rules apply to both negotiated and non-negotiated contracts
Under the Consumer Rights Act (2015), if a contract term can be interpreted as having two meanings, what determines which meaning will be used?
The one MOST FAVOURABLE TO THE CONSUMER
Under the Consumer Rights Act (2015), if a contract term is deemed unfair, what does this mean for the customer?
The term becomes UNBINDING, but the consumer can STILL RELY ON THE TERM IF THEY WISH
What is Distance Marketing?
Any sale where a contract is concluded without the parties meeting face-to-face (e.g. phone/online sales)
Under The Financial Services (Digital Marketing) Regulations (2004), when is a contract considered to have been ‘concluded’? When must this be done? (consider the different types of delivery)?
Once it has been written on a DURABLE MEDIUM (paper or electronically) & TERMS HAVE BEEN RECEIVED BY THE CONSUMER
Must be done in GOOD TIME, PRIOR TO CONCLUSION OF THE CONTRACT
or if concluded by distance communication then IMMEDIATELY AFTERT CONCLUSION
Under The Financial Services (Digital Marketing) Regulations (2004), when does the cooling-off period of a contract start and end?
Starts - when contract has concluded
Ends 14 DAYS LATER
or
30 DAYS LATER - LIFE INSURANCE/PENSIONS
True or False - Under The Financial Services (Digital Marketing) Regulations (2004), scripts should be followed for both incoming and outgoing telephone sales calls.
True
What is meant by financial inclusion?
Making products/services ACCESSIBLE & AFFORDABLE TO ALL INDIVIDUALS/BUSINESSES regardless of PERSONAL NET WORTH/COMPANY SIZE
Define financial exclusion.
INABILITY, DIFFICULTY or RELUCTANCE to access mainstream financial services
Which groups are most vulnerable to social exclusion? (10)
- Young unemployed (NEETs)
- Divorcees/Lone parents
- Disabled/Mental Health problems
- Carers
- Prisoners/ex-offenders
- Ethnic Minorities/Refugees/Migrants
- Old people
- Homeless / Living in Housing Association
- Low Income
- Post Office/Basic bank account only
According to Milton (2008), what are the reasons for financial exclusion continuing to exist today? (4)
- Branch closures
- especially in deprived areas - Growth in phone/internet services
- not everyone can access - Credit scoring
- not everyone reaches benchmark score - Lack of integration of Corporate Social Responsibility (CSR) policies with other departments
Why are old people particularly susceptible to financial exclusion? (2)
What is the solution to this?
- Not adapted quickly enough to change, e.g. less over-the-counter services
- Vulnerable to fraud, because of unfamiliarity with new services/digital security
Solution = education & outreach, eg. Barclay’s Digital Eagles
What is corporate governance?
Who is responsible for this?
The system by which companies are directed & controlled.
Board of Directors is responsible.
In a nutshell, corporate governance = what the board does & how it sets the values of the the company. This is NOT the day-to-day running of the company by the full time operational management.
What is the role of a company’s shareholders? (3)
- Appoint Directors
- Appoint Auditors
- Satisfy themselves that an appropriate governance structure is in place
What is the UK Corporate Governance Code? Who oversees this?
Part of the UK legal system which SUMMARISES THE IMPORTANCE OF GOOD GOVERNANCE.
Overseen by The Financial Reporting Council (FRC).
Who does the UK Corporate Governance Code apply to?
All companies which OPERATE WITHIN THE UK with a PREMIUM LISTING OF EQUITY SHARES (doesn’t have to be registered in UK)
What are the main points summarised within the UK Corporate Governance Code? (3)
- Companies DON’T EXIST IN ISOLATION
- they underpin the economy as a whole - Directors/Companies must MAINTAIN SUCCESSFUL RELATIONSHIPS WITH A WIDE RANGE OF STAKEHOLDERS
- Company culture should promote INTEGRITY/OPENESS, value DIVERSITY & be RESPONSIVE TO VIEWS OF SHAREHOLDERS/STAKEHOLDERS
What was ISO 26000 created to do?
Help organisations address SOCIAL RESPONSIBILITY ISSUES relevant to the COMMUNITY, including the ENVIRONMENTAL IMPACT among other factors
