Chapter 1 - Retail Banking Flashcards
What is a retail bank?
A financial organisation that look’s after personal customers and provides them with money transmission services, cheque books and the ability to have their salary deposited and to pay bills.
E.g. Lloyds
What is a wholesale bank?
A financial organisation involved in larger corporate, intermediary to intermediary deals. For the raising and placing of funds in the stock market.
E.g. Goldman Sachs
What is a building society?
A savings institution that enables their customers (members) to borrow money for house purchases. Mutually owned by it’s members.
E.g. Nationwide
What are the innovations that came out of Scottish banking?
Overdraft - In case-of-need facilities. Customers dip into funds that aren’t effectively there’s to tie them over on a short-term basis.
Branch banking - Having many branches representing one institution in many geographical locations.
Joint-stock banking - Where the bank funds it’s operation and day-to-day business by selling shares of the company to people. People rewarded with dividends.
The Clearing House - A meeting place for banks to exchange the cheques that have been drawn by their customers in favour of other bank’s customers.
The Chartered Banker Institute - Professional code of conduct. Oldest global banking institute.
What are the differentiating factors for competition amongst banks?
Range of services online and via contact centres.
Extent and location of branch network.
Interest paid and charged.
Fees charged.
Range and quality of additional services.
Perceived stability, trustworthiness and personalisation of services.
What caused the Credit Crisis?
Predatory lending.
Attractive low interest rates locking in borrowers.
Underwriting standards for mortgage decline.
Sub-prime lending increased with underestimation of risks involved.
Equity-release borrowing by customers willing to tap into the value tied up in their property.
Securitisation - Process of insuring securities backed by cash flows from existing mortgage backed assets.
What did The Vickers Report propose in response to the Credit Crisis?
Competitive and innovative banking sector is crucial to the UK.
Macro-prudential regulation by PRA should avoid some problems but impossible to eliminate risk altogether.
Basel III reforms increasing capital adequacy to be further enhanced.
International reforms such as Basel accord and EU initiatives to be reinforced nationally.
Separation of Retail and Wholesale banking activity by 2019.
Free current account redirection service to be established.
What are the major functions of a retail bank?
Accept deposits.
Grant loans.
Issues notes (Scotland only)
Insurance
What is the Bank of England and what is it’s purpose?
A limited liability joint-stock company.
Government’s banker.
Issuer of notes.
Lender of the last resort.
International relations.
Manages the exchange equalisation account (ensuring GBP is stable)
Regulatory role.
Private banking.
What did the Bank of England Act (1998) propose?
The monetary policy objectives of the bank are to maintain price stability and support the government’s economic policy.
Money policy committee established.
New accountability framework introduced.
Greater transparency in the bank’s operations.
Supervision of UK banks transferred to the FSA. (Has since been changed back in light of banking crisis.)
What is quantitative easing?
Banks with insufficient liquidity holding loan stock can hand over it’s assets in exchange for cash which would allow the bank to lend to industry again, in turn stimulating the economy.
What is a Credit Union and what is it’s purpose?
A credit union is a form of co-operative. It’s “run by the members, for the members”.
Members originally bound by a ‘common bond’.
Members have full voting rights and can attend meetings.
Common bond restriction removed; potential for wider remit of customers.
Not very prominent in the UK.
