Banks and their function Flashcards
Where does the word Bank come from
The Italian word “Banco” meaning a bench or table at which Italian money lenders used to conduct business in the middle ages.
What is the name of the oldest bank still in business?
Monte dei Paschi di Siena
Monte dei Paschi di Siena, what founded in what year?
Monte dei Paschi di Siena was founded in 1472
“A bank is a ______ _________ that uses money ________ by customers for _________, pays it out when _______, makes loans at ______, and exchanges __________.” - Oxford English Dictionary
“A bank is a FINANCIAL ESTABLISHMENT that uses money DEPOSITED by customers for INVESTMENTS, pays it out when REQUIRED, makes loans at INTEREST, and exchanges CURRENCY.” - Oxford English Dictionary
“A Bank is an ________ which accepts _____, makes _____, pays _______, and performs ______ services” - British Bankers’ Association
“A Bank is an ORGANISATION which accepts DEPOSITS, makes LOANS, pays CHEQUES, and performs RELATED services” - British Bankers’ Association
What is Banking?
The Business conducted, or the services offered by a bank.
Types of Banking activities
- Commercial Banking
- Investment Banking
- Bancassurance
Commercial Banking is essentially what?
About taking deposits and making loans.
What is a Commercial bank essentially doing when taking deposits?
It is effectively borrowing that money from the Depositor because it is based on a condition that the money can be returned to the depositor on demand.
Commercial banking Includes 3 types of banking- name them.
- Retail Banking
- Business Banking
- Wholesale Banking
What is retail banking?
Taking deposits from and lending to individuals, through a range of delivery channels, typically including a branch network.
What is Business banking?
Taking deposits from and lending to small or medium-sized business enterprises
What is Wholesale Banking?
Borrowing from and lending to large corporate clients, other financial institutions, public agencies, and governments. It involves dealing in large sums of money, which can be raised in London’s money market.
What is Investment Banking about?
- Providing advice to corporate customers who want to raise finance
- Managing corporate mergers and acquisitions
- Buying and selling shares and bonds on behalf of both corporate and private customers (typically high net worth customers), as well as for the bank.
- Managing customers’ investments and share portfolios.
What are the central activities of a commercial bank?
Involve taking deposit from and lending to individuals and companies. The bank collects money from people or companies who have surplus funds they want to deposit for safekeeping, and it lends money to those who want or are short of funds.
Describe a bank’s creditors?
A customer who deposits money are the banks creditors.
This is because the bank is effectively borrowing there money
Describe a banks debtors?
A customer to whom the bank lends money, because the customers owe them the money they have borrowed
The purpose of a bank for deposit customers?
The Banks Creditors
Customers want to deposit money into current accounts to hold heir cash in a form that is liquid and to transact payments.
What does it mean when money is liquid?
Easily available
What does a banks depositor/customer want banks to do?
- Reduce the risks of their payments.
- look after their money and financial investments
Because of the depositors what does the bank therefore have a duty to do?
- Reduce risks for their deposit customers
- Administer customers accounts reliably, securely and confidentially
How does a bank reduce risks for their deposit customers? And also administer customers accounts reliably, securely and confidentially?
- Facilitation and coordinating payments
- providing safe custody for deposit under conditions that preserve their liquidity (Availability)
- Creating opportunities for the investment of capital (The money available for investments), invested without risk whilst ensuring modest rates of return
What is the purpose of a bank for credit customers?
Banks debtors
The purpose of the bank is to make finance available. In doing so the bank has a duty to lend responsibly.
This means remaining objective, while having the courage to take some level of risk that comes with the decision to lend.
By providing _____ to ___________ and collecting ________ from savers, the bank _______ as a financial ____________ between borrowers and ______.
By providing loans to borrowers and collecting deposits from savers, the bank functions as a financial intermediary between borrowers and savers.
In what way is there a conflict between the banks duties to its savers and borrowers?
The bank’s respective duties to its savers and borrowers conflict because, on the one hand, the bank must be risk-adverse and cautious with savers money. On the other hand, it must embrace a level of risk in order to lend money. The bank therefore needs to reconcile these duties and to intermediate between deposit customers’ expectations that risk will be avoided and borrowers’ expectations that there will be some risk.
What is Bancassurance?
The development of insurance and life assurance provision by banks is known as bancassurance.
What is the ABI (The association of British Insurers) definition of bancassurance?
“Insurance _____________ that are subsidiaries of _______ and building societies and whose ________ market is the ______________ base of the bank or building society”
“Insurance companies that are subsidiaries of banks and building societies and whose primary market is the customers base of the bank or building society”
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