Nama : Eva Lestari ( 21208448 )

Kelas : 3EB11

Banking

A bank is a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly or through capital markets. A bank connects customers with capital deficits to customers with capital surpluses.

Banking is generally a highly regulated industry, and government restrictions on financial activities by banks have varied over time and location. The current set of global bank capital standards are called Basel II. In some countries such as Germany , banks have historically owned major stakes in industrial corporations while in other countries such as the United States banks are prohibited from owning non-financial companies. In Japan , banks are usually the nexus of a cross-share holding entity known as the keiretsu

The definition of a bank : conducting current accounts for his customers, paying cheques drawn on him, collecting cheques for his customers.”banking business” means the business of receiving money on current or deposit account, paying and collecting cheques drawn by or paid in by customers, the making of advances to customers.

“banking business” means the business of either or both of the following:

1. receiving from the general public money on current, deposit, savings or other similar account repayable on demand or within less than [3 months] or with a period of call or notice of less than that period.
2. paying or collecting cheques drawn by or paid in by customers.

Banks offer many different channels to access their banking and other services:

• ATM is a machine that dispenses cash and sometimes takes deposits without the need for a human bank teller. Some ATMs provide additional services.
• A branch is a retail location.
• Call center
• Mail : most banks accept check deposits via mail and use mail to communicate to their customers, eg by sending out statements.
• Mobile banking is a method of using one’s mobile phone to conduct banking transactions.
• Online banking is a term used for performing transactions, payments etc. over the Internet.
• Relationship Managers , mostly for private banking or business banking, often visiting customers at their homes or businesses.
• Telephone banking is a service which allows its customers to perform transactions over the telephone without speaking to a human.
• Video banking is a term used for performing banking transactions or professional banking consultations via a remote video and audio connection. Video banking can be performed via purpose built banking transaction machines (similar to an Automated teller machine), or via a videoconference enabled bank branch.

Business model

A bank can generate revenue in a variety of different ways including interest, transaction fees and financial advice. The main method is via charging interest on the capital it lends out to customers.The bank profits from the differential between the level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities.

This difference is referred to as the spread between the cost of funds and the loan interest rate. Historically, profitability from lending activities has been cyclical and dependent on the needs and strengths of loan customers and the stage of the economic cycle . Fees and financial advice constitute a more stable revenue stream and banks have therefore placed more emphasis on these revenue lines to smooth their financial performance.

Risk and capital

Banks face a number of risks in order to conduct their business, and how well these risks are managed and understood is a key driver behind profitability, and how much capital a bank is required to hold. Some of the main risks faced by banks include:

• Credit risk : risk of loss arising from a borrower who does not make payments as promised.
• Liquidity risk : risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit).
• Market risk : risk that the value of a portfolio, either an investment portfolio or a trading portfolio, will decrease due to the change in value of the market risk factors.
• Operational risk : risk arising from execution of a company’s business functions.

The economic functions of banks include:

1. Issue of money, in the form of banknotes and current accounts subject to cheque or payment at the customer’s order.These claims on banks can act as money because they are negotiable or repayable on demand, and hence valued at par.They are effectively transferable by mere delivery, in the case of banknotes , or by drawing a cheque that the payee may bank or cash.
2. Netting and settlement of payments – banks act as both collection and paying agents for customers, participating in interbank clearing and settlement systems to collect, present, be presented with, and pay payment instruments.
3. Credit intermediation – banks borrow and lend back-to-back on their own account as middle men.
4. Credit quality improvement – banks lend money to ordinary commercial and personal borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of the bank’s assets and capital which provides a buffer to absorb losses without defaulting on its obligations.
5. Maturity transformation – banks borrow more on demand debt and short term debt, but provide more long term loans..

Regulation Bank

1. The bank account balance is the financial position between the bank and the customer: when the account is in credit, the bank owes the balance to the customer; when the account is overdrawn, the customer owes the balance to the bank.
2. The bank agrees to pay the customer’s cheques up to the amount standing to the credit of the customer’s account, plus any agreed overdraft limit.
3. The bank may not pay from the customer’s account without a mandate from the customer, eg a cheque drawn by the customer.
4. The bank agrees to promptly collect the cheques deposited to the customer’s account as the customer’s agent, and to credit the proceeds to the customer’s account.
5. The bank has a right to combine the customer’s accounts, since each account is just an aspect of the same credit relationship.
6. The bank has a lien on cheques deposited to the customer’s account, to the extent that the customer is indebted to the bank.
7. The bank must not disclose details of transactions through the customer’s account—unless the customer consents, there is a public duty to disclose, the bank’s interests require it, or the law demands it.
8. The bank must not close a customer’s account without reasonable notice, since cheques are outstanding in the ordinary course of business for several days.

Types of banks

retail banks

• Commercial bank to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses.
• Community banks : locally operated financial institutions that empower employees to make local decisions to serve their customers and the partners.
• Community development banks : regulated banks that provide financial services and credit to under-served markets or populations.
• Credit unions : not-for-profit cooperatives owned by the depositors and often offering rates more favorable than for-profit banks.
• Postal savings banks : savings banks associated with national postal systems.
• Private banks : banks that manage the assets of high net worth individuals.
• Offshore banks : banks located in jurisdictions with low taxation and regulation.
• Savings bank to provide easily accessible savings products to all strata of the population.
• Building societies and Landesbanks : institutions that conduct retail banking.
• Ethical banks : banks that prioritize the transparency of all operations and make only what they consider to be socially-responsible investments.
• A Direct or Internet-Only bank is a banking operation without any physical bank branches, conceived and implemented wholly with networked computers.

investment banks

• Investment banks ” underwrite ” (guarantee the sale of) stock and bond issues, trade for their own accounts, make markets, and advise corporations on capital market activities such as mergers and acquisitions.
• Merchant banks were traditionally banks which engaged in trade finance .The modern definition, however, refers to banks which provide capital to firms in the form of shares rather than loans.

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