‘’ BaNkiNG ’’

Banks: Banks are the principal source of credit (loanable funds) for millions of
individuals and families and for many units of government. A bank is a financial
institution licensed to receive deposits and make loans. Banks may also provide financial
services, such as wealth management, currency exchange, and safe deposit boxes.

Commercial banks are typically concerned with managing withdrawals and receiving
deposits as well as supplying short-term loans to individuals and small businesses.
Consumers primarily use these banks for basic checking and savings accounts,
certificates of deposit (CDs), and home mortgages.

Banks collects money from society and offers interest on the amount, and banks give
loans to the people taking interest more than the interest they offer. And the difference
between those interest is their profit and that is called spread..

Banks can be classified by: 1. The economic functions it serves: fund transfer and
payment functions 2. The services it offers: diversified financial services providers 3. The
legal basis for its existence  Providing loan in commercial or business nature 
Qualified for deposit insurance administrated by the FDIC

Powerful forces reshaping the banking industry:

 Higher earning but scale back the market share

 Consolidation between financial firms and larger banks

 Globalization led to intensive competition

 Converging towards competitors, offering parallel services

 Technological revolution produces and delivers financial services electronically.

Today, there are seven trends which reshape the

banking industry:

Service proliferation: provide both fee-income services and financial services revenue

Rising competition: parallel and diversified services offerings lead to reduce operating
costs
Government deregulation: broadens the legal playing fields for financial institutions in
free marketplace

Technological change and automation: deliver products automatically besides brick &
mortar model

An increasing interest-sensitive mix of fund: deregulation provides financial

institutions with mix sources of funds  more efficient fund management techniques

Consolidation: large banks expand regionally and increase number of unit sold become
larger conglomerates financial holding

Geographic Expansion:

Globalization of Banking:

Increased risk of Failure:

Rising Fund Cost:

Convergence: large banks expands from one product line to other products lines

The many different roles banks play in the Economy:

The intermediation: transforming savings received primarily from households into credit
and to make investment.

The payments: carrying out payments for goods and service on behalf of their customers

The guarantor: standing behind their customers to pay off customer debts when those
customers are unable to pay.

The agency: acting on behalf of customers to manage and protect their property or issue
and redeem their securities.

The policy: serving as a conduit for government policy in attempting to regulate the
growth of the economy and pursue social goals.

Function of the modern bank;

1.THE TRUST FUNCTION

2. THE CREDIT FUNCTION

3. THE INVESTMENT/ PLANNING FUNCTION

4. THE PAYMENTS FUNCTION

5. THE THRIFT OR SAVING FUNCTION

6. THE CASH MANAGEMENT FUNCTION

7. INVESTMENT BANKING OR UNDERWRITING FUNCTION

8. THE BROKERAGE FUNCTION

9. THE INSURANCE FUNCTION

Services Of Banks:

1. Carrying out currency exchanges

2. Discounting commercial notes and making business loan
3. Offering savings deposits
4. Safekeeping of valuables
5. Supporting Government activities with credit
6. Offering checking accounts (demand deposits
7. Offering trust services
8. Granting consumer loans
9. Financial advising
10. Cash Management
11. Offering equipment leasing
12. Making venture capital loans
13. Selling insurance services
14. Selling retirement plans
15. . Offering security brokerage investment services
16. Offering mutual funds and annuities
17. Offering investment banking and merchant banking service
18. Convenience : the sum total of all bank service.

THE COMPETITIVE CHALLENGE FOR BANKS:

 Lately, the financial market share that banking comprised has fallen
 Some authorities in the financial-services field fear that this apparent erosion of market
share may imply that traditional banking is dying

 Other experts counter that banking is not dying but changing by offering new services
and changing its form

 The banking industry’s largest customers have found ways around banks to obtain the
funds that they need (Ex: Borrowing in the open market)

LEADING COMPETITORS WITH BANKS:

Saving associations: saving deposit, mortgage loans and credits to individuals and
families

Credit unions: collect deposits and make loans to members as non-profit associations of
individuals sharing common bond

Money market funds: collect short-term funds to invest in quality securities of short
duration

Mutual funds (investment companies): sell shares to public to raise capital and invest in
professional pool of investment instruments

Security brokers & dealers: buy and sell securities on behalf of their customers and for
their own accounts

Investment banks: provide professional advices, raising capital, M&A services

Finance companies: offer loans to commercial enterprises

Financial holding companies: Highly diversified financial service providers (credit cards,
insurance, securities)

Life and property insurance: protect against risks to people, property, manage pension
plans and retirement funds

**Mega banks can become conglomerate financial service providers. Financial-service

providers are converging in terms of the services they offer. The challenge of
differentiating banks from other financial-service providers is difficult today.
Nonbank banks: Nonbank banks are financial institutions that are not considered full-
scale banks because they do not offer both lending and depositing services. Nonbank
banks can engage in credit card operations or other lending services, provided they do not
also accept deposits.
Many nonbank banks or non-banking financial companies offer mortgage services, such
as first-time home loans and refinancing options. Some mortgage-centric nonbank banks
provide streamlined loans and some may consider lending to customers with fair-to-good
credit. Nonbank banks may offer loans but do not provide deposit services, like checking
or savings accounts.

What is a bank spread?

Bank spread is the difference between the interest rate that a bank charges a borrower and
the interest rate a bank pays a depositor. Also called the net interest spread, the bank
spread is a percentage that tells someone how much money the bank earns versus how
much it gives out.
Deeper definition
A bank earns money from interest it receives on loans and other assets, and it pays out
money to customers who make deposits into interest-bearing accounts. The ratio of
money it receives to money it pays out is called the bank spread.
The bank spread can indicate a bank’s profit margin. A high spread equates to a higher
profit margin, since the difference between interest earned and interest paid out is high.
However, bank spread measures the average difference between lending and borrowing
interest rates, not the amount of banking activity itself, which means that bank spread
doesn’t necessarily indicate a financial institution’s profitability.

What Is Online Banking?

Online banking allows a user to conduct financial transactions via the Internet. Online
banking is also known as internet banking or web banking.
Online banking offers customers almost every service traditionally available through a
local branch including deposits, transfers, and online bill payments. Virtually every
banking institution has some form of online banking, available both on desktop versions
and through mobile apps.

#With online banking, consumers aren't required to visit a bank branch to complete most
of their basic banking transactions. They can do all of this at their own convenience,
wherever they want—at home, at work, or on the go.
Online banking requires a computer or other device, an internet connection, and a bank
or debit card. In order to access the service, clients need to register for their bank's online
banking service. In order to register, they need to create a password. Once that's done,
they can use the service to do all their banking.
Banking transactions offered online vary by the institution. Most banks generally offer
basic services such as transfers and bill payments. Some banks also allow customers to
open up new accounts and apply for credit through online banking portals. Other
functions may include ordering checks, putting stop payments on checks, or reporting a
change of address.
Checks can now be deposited online through a mobile app. The customer simply enters
the amount before taking a photo of the front and back of the check to complete the
deposit.
Online banking does not permit the purchase of traveler's checks, bank drafts, certain
wire transfers, or the completion of certain credit applications like mortgages. These
transactions still need to take place face-to-face with a bank representative.

#Online banking is fast and efficient. Funds can be transferred between accounts almost
instantly, especially if the two accounts are held at the same institution. Consumers can
open and close a number of different accounts online, from fixed deposit to recurring
deposit accounts that typically offer higher rates of interest.
Consumers can also monitor their accounts regularly closely, allowing them to keep their
accounts safe. Around-the-clock access to banking information provides early detection
of fraudulent activity, thereby acting as a guardrail against financial damage or loss.