Banking Basics Flashcards
Describe the Banker- customer relationship as a Debtor-Creditor
The customer is the creditor, and the bank is the debtor. The customer (creditor) deposits funds with the bank (the debtor). The bank can use the funds as it pleases without the customer’s knowledge, however they are liable to payback when the customer requests for repayments (just not in the same denominations).
Describe the banker customer relationship as a principal and agent
The bank acts as an agent for the customer by performing transactions on behalf of the customer. This happens when the paying/honoring the customers cheques that are presented through the clearing system. Collecting proceeds of a check, effecting transfers, purchasing and selling shares for customers, fund management and collecting proceeds for service providers
Describe the banker-customer relationship as a mortgagee-mortgagor
The customer is the mortgagor, and the bank is the mortgagee. This arises when the customer has borrowed from the bank and mortgages an asset, usually an immoveable property, such as land and buildings, as security.
Describe the banker-customer relationship as a bailee and bailor
The customer is the bailor, and the bank is the bailee. This occurs when the customer deposits items for safe custody with the bank. The bank is entitled to charge the bailee for this service.
What are some duties of the banker?
- To receive customer’s cash , cheques and other instruments ( eg electronic transfers) for the credit of the customer’s account
- To repay the customer’s funds upon
presentation of the customer’s written
authority, or other agreed mechanisms.eg
digital services. - Confidentiality in customer’s dealings.
4.To advise the customer of any known
forgeries to his signature, and exercise care
and diligence in handling the account. - This Duty to ensure e-banking services are
convenient, private, secure and available. - Advise customers on appropriate fees for
services rendered and their conditions. - To issue statements to the customer
- To give reasonable notice before termination of an account. (3 months
for a company and 1 month for individuals deemed to be reasonable)
What are some duties of the customer to the bank?
- To pay a reasonable charge for the use of the bank’s facilities.
- To seek out the bank when he/she needs to be repaid, either through physical or electronic means.
- To seek payment up to the amount in the account or up to an agreed overdraft limit.
4.To advise the bank of known forgeries to his/her signature, or suspicion of fraudulent attempts on electronic banking facility. - Duty of care when drawing cheques or performing digital transactions so as not to facilitate fraudulent alterations. In e-banking, customers must protect their passwords, pin codes, etc, to avoid impersonation and fraud.
What are the 4 circumstances or conditions where banks are not required to guard privacy?
a) Disclosure under compulsion of law (When the bank is ordered to produce a customers account in court) or by BOG, EOCO, FIC, etc.
b) Disclosure where there is duty to the public
(Persons involved in fraud, narcotics and financing terrorism)
c) Disclosure in the interest of the bank (issuing a writ against a customer in the event of default on a loan)
d) With customers’ express or implied consent (e.g to customers’ Auditors, Principals, Partners or Agents)
What are some things that bankers that can lead to a breach in confidentiality?
Misdirected email and attachments
1. Leaving confidential documents lying about, or in the printer or waste baskets: Breach of bank’s clear desk policy.
2. Loud discussions of sensitive transactions, within the listening range of other customers. (forex or large cash withdrawals)
3. Delivering information to third parties without checking for the consent of customers
4. Discussing customers balances/transactions in front of third parties.
5. Discussion of customers’ affairs in public places. (Church member discussing her bank’s loan arrangement with the Chairman of
Fund Raising Program)
6. Linking cards to wrong accounts
7. Divulging deceased accounts to third parties without proper documented authority (Probate of the Will, letters
of Administration)
8. Leaving demand notices with third
parties in the absence of customers
In what cases can the banker-customer relationship be terminated?
- When either party requests for the contract to be terminated.
- Death of customer
- Insanity/lunacy of customer
- Bankruptcy of the customer
How many months notice should the bank give a company account before it decides to terminate?
3 months
How many months notice should the bank give a personal account before it decides to terminate the account?
1 month
How can a customer close it’s account with a bank?
- To carry out the account closure process, an account holder needs to visit the branch personally.
- Customer completes an account closure form, stating reasons for the request.
- Bank must collect unused cheque book, savings withdrawal booklet, debit card and any other bank property.
What could cause an account to be undesirable for the bank to close them?
- Illegal transfer of funds through the accounts
- Money laundering and terrorist financing suspicions
- Dormant account, resulting in overdrawn balances accrued from bank charges.
- Constant issue of dud cheques, and disregard to warning letters and reminders.
- Upon the Directives from Bank of Ghana.
- Zero Balance.
- Suspected Identity Theft.
What are the general principles for an account closure?
- The request for closure has to be in writing
- Retrieve all bank stationery (Cheque books, ATM cards etc.)
3.Delete account details from system
4.The duty of secrecy survives even after account closure - Retrieve and file away customer mandate file
What is the current bills of exchange act?
The Bills of exchange Act, 1961, Act 55
What is a bill of exchange?
The bill of exchange is an unconditional order/ financial instrument given by the drawer to the drawee, for payment of a certain amount to the payee, stated on the bill of exchange, or to the drawer themselves
Who are the parties to a cheque?
- The Drawer : The person (your customer), who signs, or draws, the cheque. It is he who orders you (his banker) to pay out his money away (to another party or to himself).
b) The Drawee : The person to whom the order is addressed, i.e. the banker.
c) The Payee : The payee, or beneficiary, after he has written his name upon the back of (an order) cheque (and who assumes certain responsibilities and rights)
What are the types of cheques?
a. “Order” Cheques – when a cheque is made payable to a specific person or entity (referred to as the “payee”), that person or entity must sign the back of the cheque (known as an “endorsement”) in order to transfer ownership or authorize the cheque to be cashed or deposited be endorsed by the person to whom it is made payable.
b) “Bearer” Cheques – a cheque made payable to “bearer” or “cash” can be transferred or cashed by anyone who holds it, without needing the payee’s endorsement. However, in order for the cheque to be valid for transfer, the drawer (the person who wrote the cheque) must endorse it.
c. Open cheque/ uncrossed cheque- they can be presented for payment at the counter
d. Crossed cheque
What is a crossed cheque?
A crossed cheque is a type of cheque that has two parallel lines drawn across its face, often with or without the words “& Co.,” “Not Negotiable,” or “Account Payee Only” written between them. It is a security measure that ensures the cheque can only be deposited into a bank account and cannot be cashed over the counter.
Why is a cheque crossed?
A cheque is crossed to prevent the payee or holder of the cheque from cashing it over the counter of the paying (drawee) banker. This means that a crossed cheque must be paid into an account, thus ensuring the cheque passes through the hands of a banker who has to handle with care and according to law. If a crossing on a cheque has been “Opened”, the cheque should only be cashed for the drawer himself or his known agent, or the person endorsed to.
What are some warning signs of an illegal cheque?
- MICR ink that looks shiny or that feels raised. Magnetic ink is dull and legitimate printing produces characters that are flat on the paper.
- A cheque on which the name and address of the drawee bank is typed, rather than printed, or that includes spelling errors. Eg (GCB Berekum was cloned as GCB Brekum)
- A cheque that has no perforated edge.
- A cheque on which information shows indications of having been altered, eradicated, or erased.
- A signature that is irregular-looking or shaky or shows gaps in odd spots. (Note, signatures become less flowing with age)
- A cheque printed on poor quality paper that feels slippery.
- Cheque colours that smear when rubbed with a moist finger. (This suggests they were prepared on a colour copier).
- Cheques payable to a corporate body that are presented for cashing by an individual
- Cheques that have amounts in numbers and in words that do not match
What guidelines should you consider when paying cash cheques?
- Properly identify customers, either through personal recognition or signature and other personal picture identification.
- If in doubt, refer the customer to either the manager, relationship manager or customer service manager
- Require identification and list them on the back of the cheque. Carefully review the identification to ensure it is genuine. Be alert for people who try to distract you while you review his or her identification.
- Refer all questionable transactions to a supervisor for a second opinion
In the Bills of exchange Act, Section 81states that in order for a collection banker to receive protection, there are certain conditions that need to be observed, what are they?
- The banker must act in good faith.
- The banker must act without negligence.
- The banker must collect cheques for its customer
In order to avoid the charge of negligence, what precautions must the collecting banker observe?
- The correctness of endorsements or ‘order’ cheques must be verified.
- Do not collect:
▪ cheques payable to a partnership for the private account of one of the
partners.
▪ for a private account, a cheque in favour of a limited company. - If a cheque is crossed “a/c payee”, do not credit the account of a customer who is not the payee
Cheques presented for encashment at the counter, which cannot be paid should be returned when?
Immediately
House cheques received over the counter for credit on another account which cannot be paid are to be returned when?
By close of business that day
What are some reasons for the non-payment of cheques?
- endorsement is irregular or payee’s endorsement is required
- amount in words and figures differ
- the cheque is post-dated
- the cheque is out of date
- cheque is mutilated
- alteration requires drawer’s signature
- effects not cleared
- refer to drawer
- orders not to pay
- signature differs
- there is no account
According to Section 58 of the Bills of exchange act, protection can only be given to a paying banker when paying a cheque with a forged endorsement, if certain conditions are fulfilled, what are they?
- The cheque before it is paid must be examined to make sure that on the face of it, it does appear to be entirely in order. It must be regular and properly drawn.
- The cheque must be paid in good faith.
- It must be paid in the ordinary course of business
According to Section 79 of the Bills of exchange act, protection can only be given to a paying banker when paying a crossed cheque with a forged endorsement, if certain conditions are fulfilled, what are they?
- The cheque must be paid in good faith.
- It must be paid without negligence.
- It must be paid in accordance with the terms of the crossing
What is subrogation?
Subrogation in banking means that when a bank pays a debt on behalf of a customer (or suffers a loss due to fraud), it steps into the shoes of the customer and gains the right to recover that money from the responsible party.
Example: Bank Pays a Fraudulent Cheque
A bank mistakenly pays out a forged cheque. Later, the bank realizes the fraud and refunds the customer. Subrogation allows the bank to take legal action against the fraudster to recover the lost funds.
Explain the concept of contributory negligence
Contributory negligence in banking happens when a customer’s own carelessness helps cause fraud, forgery, or an unauthorized transaction. If this happens, the law may reduce or deny their right to claim compensation from the bank or another party.
Explain the concept of countermand in banking
Countermand in banking refers to a customer’s right to stop or cancel a payment instruction before it is processed by the bank.
Key Conditions for Countermanding:
- The request must be made before the bank processes the payment.
- It must be given in clear terms (e.g., written instructions or a formal request).
In what instance will a bank wrongfully dishonor a cheque?
- if it fails to pay on an unstopped cheque
- when the bank has the erroneous belief that:
a. the account is overdrawn or has no funds
b. the drawer has exceeded an authorized overdraft facility
c. the account is closed
What are some situations in which a bank may mistakenly debit a customer’s account?
- paying a forged cheque
- paying a stopped cheque
- paying a cheque whereas there are insufficient funds
- paying an altered cheque
- making the same payment twice
What are the key elements required to prove estoppel in banking?
- The bank must have indicated (expressly or impliedly) that it would make a payment.
- The person receiving the payment must have relied on the bank’s representation and changed their financial position.
- The holder must have acted in good faith
