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Legal Definition of a Commercial Bank

 Any institution that qualifies for deposit insurance administered by central bank
---------------------------------------------------------------------------------------------------------------------Types of Banks
 Commercial Bank
[Sell deposits and make loans to businesses and individuals]
 Savings Bank
[ Attract savings deposits and make loans to individuals and families]
 Community Bank
[ Is smaller, locally focused commercial and savings bank]
 Money Center Bank
[ Is large commercial bank based in leading financial centers]
 Investment Bank
[ Underwrite issues of new securities by their corporate customers]
 Merchant Bank
[ Supply both debt and equity capital to businesses]
 Central Bank
 International Bank
[ Is commercial bank present in more than one nation]
 Mortgage Bank
[ Provide mortgage loans on new homes but do not sell deposits]
 Virtual Bank
[ Offer its services over the internet]
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Discuss traditional functions & new functions of banks??
Traditional Functions
 Accepts Deposits for Transactions and Saving
 Makes Loans to Consumers, Business, and Government
 Invests in Securities
 Makes Payments for Customers (Checking)
 Provides Currency and Coin for Customers
 Provides Safekeeping of Valuables
 Exchanges Currencies
 Trust Services
Other Financial Services Provided by Banks
 Corporate Cash Management
 Equipment Leasing
 Insurance
 Retirement and Pension Plans
 Security Brokerage, Mutual Funds, Annuities
 Merchant Banking
 Financial Advising and Planning
 Credit, Debit, and Smart Cards
 ATM’s, Point of Sale Payment, and Internet Banking
-------------------------------------------------------------------------------------------------------------------------Key Trends Affecting Banks and Other Financial-Service Firms








Service Proliferation
Rising competition
Government Deregulation
An Increasingly Interest-Sensitive Mix of Funds
Technological Change
Consolidation and Geographic Expansion
Convergence
Globalization
Increased Risk of Poor Performance and Failure

---------------------------------------------------------------------------------------------------------------------------Risks faced by banks

Credit Risk
The Probability that Some of the Financial Firm’s Assets Will Decline in Value and Perhaps Become Worthless

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To ensure adequate supply of loans and to ensure fairness 4. -----------------------------------------------------------------------------------------------------------------------Reasons for Bank Regulation 1. To protect the public's savings 2. Lawsuits or Adverse Judgments.Liquidity Risk Probability the Financial Firm Will Not Have Sufficient Cash and Borrowing Capacity to Meet Deposit Withdrawals and Other Cash Needs Market Risk Probability of the Market Value of the Financial Firm’s Investment Portfolio Declining in Value Due to a Change in Interest Rates Interest Rate Risk The Danger that Shifting Interest Rates May Adversely Affect a Bank’s Net Income. the Value of its Assets or Equity Operational Risk Uncertainty Regarding a Financial Firm’s Earnings Due to Failures in Computer Systems. Capital Risk Probability of the Value of the Bank’s Assets Declining Below the Level of its Total Liabilities. Errors. Lightening Strikes and Similar Events or Risk of Loss Due to Unexpected Operating Expenses Legal and Compliance Risk Risk of Earnings Resulting from Actions Taken by the Legal System. To provide support for government activities 7. 2 . Compliance Risk Includes Violations of Rules and Regulations Reputation Risk This is Risk Due to Negative Publicity that can Dissuade Customers from Using the Services of the Financial Firm. Misconduct by Employees. To support special sectors of the economy falls because businessmen would not borrow at unavailable rates. To avoid monopoly powers 6. To maintain confidence in the system 5. To control the money supply 3. Floods. It is the Risk Associated with Public Opinion. This can Include Unenforceable Contracts.