EiJ Commercial and retail banking

+i Commercial and retail banks

\'X'hm people havl' more;: mone�• rhm rhcy need ro speud, they 111:J.y dmo.se ro s:1vc it. They
deposit it in a bank account, at :1 commercial or Tctail bank, and rhe lxmk genc:rall )' pay,;
interest to the depositor.,;. The h,mk then uses rhc 111oni"y that has lxT11 c.lt·posired to gr:mt
loans- lend money w borrowers who need more money than they h:.tve avaifablt. B:1nks
make a profir by charging a highf'r rare of interest to borrowers than they pa}' ro dtposirors.
Commcn:ial banks can also move or 1ransfer money from one custnrner's bMtk account

;■
ro another one, at rhe s.1me or 311otl1..:r h:mk, when rhc cusromcr asks them ro.

Credit
Bank 'i :.il-,o crc:ue credit- make money av;:1ibblc for someone to borrow- because rhc
moncr they lend, from rhcir dcrosits, is usually spt:11t and so tr:111sferrcd ro another bank
:1n.:uunt.
Titc capir.il a bank has :md rhl..' lonns ir has made are its assets. The customers' deposits
arc liabifoies because the mo,11:y is owed ro someone else. Banks have to keep a certain
pcrc1:nrage of tht'ir assets :1s reserves for borrowers who wmu to withdr:1w rheir money.
This is known as the re.serve requircmcnr. For cxampk, if the rc-sc:rve requir.:ment is 1 O'Yo,
a bank thJ.t receive'.'; :1 € 100 derosit can lend €90 of it. If the l,o(rower spends rhe money
and write'> a cheque ro som1.:one who dcpositii the €90, the b:111.k receiving that deposit
can !end €81. As the proct:ss continues. rhc banking �ystem can �xpand the first deposit
of€ 100 into nearly €1,000. In this way, it cremes credit of almost €900.

I Loans and risks

l:kfore lendlni monc\', a b,1nk h,1s to as�es.s or GllcuLitt the risk involved. Gcm:rally, rhe
grcatt'r the ris·k for rhc b,mk of nor bei1ig repaiJ, the higher rhc irncrL·sr rare thcy charge.
M,t.-\ ret·.,;I h,:mks h"''C stand-:udi1.cd ))rndu-cts for person"\ -cwstorncrs. such �,s person.\\
loans. ll1is mc,111s rh,n .ill customers who have bt.·t'n !,;f:Jnt1,.'cl a lo:rn have rhe same terms
a11d contlirions - the}' ha\"C the same rules for paying hack rhe money.
B�1nks h::1 ,,c more ton1plic:ued risk assessment llll-'thods for corporate customers - business
ditms - but large comp,rnies th(·sc d::1ys prefer to raise the-ir own finnncc rnrher than
borrmv from b�1nks.
K,rnks have m find a b,1bnc1: herwecn liquidity- lrnving cash available when depositors
wam it - :1nd diffrrt>nt m-aturiti.es - d�wes ·wlY.:.n lo-<,ns ,.,,m be repaid. l"hcy -a\so h:w� tn
b,1b11cC' )'idd - how much money a loan p:tys- and risk.

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46 Professional English in Use Financt

 r
20. l CmY1ph.·t1.: 1hc �L":'J)le!\(.t:>. frnff'l banks' wchsl1t'S. look :n A and <..: oppo-sik ln hdp yvu.

If you need instant access to all your money, this is the .....
for you.

Our products for include business overdrafts, loan

repa�ments that reflect your cash ilow, and commercial mortgages.
I
Our local branch managers are encouraged to help local businesses and are
a uthorized to.. .. and overdrafts.

We offer standardized loans: you can be sure you won't get less favourable terms
I
.. than our other.................. .. ........ .
and ..
�
20.2 \fati:h tht: t,vo part<, of rh1.: scnrcnc('S. Look nr A, R :rnd C opposite ro help you.
1 Banks lend san:r-,: <leposits
2 They also cn."al<: credit by
3 How much cn:Jit b,mks can neati;:
4 Befort \ent\'mg money,
5 The interest rate on a lo;lll
6 Hanks ,1lways tlLTd hquidiry,
a hanks h.wc ro ;1sscss the risk invuhnl
b depends on rhc rcsrn,(' rcquiremems.
c depends on how risky it is for the bank 10 lend the mone:-1.
d so they cnn't knd ;1.II their money in loans with long m�uurities.
c lcndin1:t the- same original deposit scvi.:ral tunes.
f to people who need to horrow monc:r.

20.3 find verbs in A, Band C opposite: thar can lx- used ro make worJ rnmbinarions with thc
nolUl'> below. Then use some of rhc vcrhs ro complete: the senrences.

1 \'(/irh sr::ind:udized prndncrs, all customers are.. rhe s.:llne int1.:rc::-.l rate,
2 Banks gcner:illy know from cxpcric11ec how mLich .:ash to keep in tl1cir rt:-St'rves for customers
who wam ro .. .. .......... .. . ir.
3 lkrnks carefully study the financial sin1aclon of a company to .......... rht' risk involved in
lending it money.

lllllwM Professional English m Use Fmance 41