Nama : Yunita Ningsih

Kelas : 3EB11

NPM : 21208340

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. Himpunan saat ini standar modal bank global disebut Basel II . 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. In Iceland banks had very light regulation prior to the 2008 collapse .

The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in Siena, Italy, which has been operating continuously since 1472.

History

Banking in the modern sense of the word can be traced to medieval and early Renaissance Italy , to the rich cities in the north like Florence , Venice and Genoa . The Bardi and Peruzzi families dominated banking in 14th century Florence, establishing branches in many other parts of Europe . Perhaps the most famous Italian bank was the Medici bank, set up by Giovanni Medici in 1397. The earliest known state deposit bank, Banco di San Giorgio (Bank of St. George), was founded in 1407 at Genoa , Italy .

Banks can be traced back to ancient times even before money when temples were used to store commodities. During the 3rd century AD, banks in Persia and other territories in the Persian Sassanid Empire issued letters of credit known as Ṣakks . Muslim traders are known to have used the cheque or ṣakk system since the time of Harun al-Rashid (9th century) of the Abbasid Caliphate . In the 9th century, a Muslim businessman could cash an early form of the cheque in China drawn on sources in Baghdad, a tradition that was significantly strengthened in the 13th and 14th centuries, during the Mongol Empire. Fragments found in the Cairo Geniza indicate that in the 12th century cheques remarkably similar to our own were in use, only smaller to save costs on the paper.

Definition

The definition of a bank varies from country to country. Under English common law , a banker is defined as a person who carries on the business of banking, which is specified as:

• conducting current accounts for his customers
• paying cheques drawn on him, and
• collecting cheques for his customers.

In most common law jurisdictions there is a Bills of Exchange Act that codifies the law in relation to negotiable instruments , including cheques , and this Act contains a statutory definition of the term banker : banker includes a body of persons, whether incorporated or not, who carry on the business of banking’ (Section 2, Interpretation). Although this definition seems circular, it is actually functional, because it ensures that the legal basis for bank transactions such as cheques does not depend on how the bank is organised or regulated.

The business of banking is in many English common law countries not defined by statute but by common law, the definition above. In other English common law jurisdictions there are statutory definitions of the business of banking or banking business. When looking at these definitions it is important to keep in mind that they are defining the business of banking for the purposes of the legislation, and not necessarily in general. In particular, most of the definitions are from legislation that has the purposes of entry regulating and supervising banks rather than regulating the actual business of banking. However, in many cases the statutory definition closely mirrors the common law one.

“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, and includes such other business as the Authority may prescribe for the purposes of this Act; (Banking Act (Singapore), Section 2, Interpretation).

Banking

Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customers’ current accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer , EFTPOS , and ATM . Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current accounts, by making installment loans , and by investing in marketable debt securities and other forms of money lending.

Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments. Non-banks that provide payment services such as remittance companies are not normally considered an adequate substitute for having a bank account. Banks borrow most funds from households and non-financial businesses, and lend most funds to households and non-financial businesses, but non-bank lenders provide a significant and in many cases adequate substitute for bank loans, and money market funds, cash management trusts and other non-bank financial institutions in many cases provide an adequate substitute to banks for lending savings too.

Channels

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. Beberapa risiko utama yang dihadapi oleh bank antara lain: 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 capital requirement is a bank regulation , which sets a framework on how banks and depository institutions must handle their capital. The categorization of assets and capital is highly standardized so that it can be risk weighted (see risk-weighted asset ).

Banks in the economy

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. This enables banks to economise on reserves held for settlement of payments, since inward and outward payments offset each other.
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. However, banknotes and deposits are generally unsecured; if the bank gets into difficulty and pledges assets as security, to raise the funding it needs to continue to operate, this puts the note holders and depositors in an economically subordinated position.
5. Maturity transformation – banks borrow more on demand debt and short term debt, but provide more long term loans. In other words, they borrow short and lend long.

Types of banks

Banks’ activities can be divided into retail banking , dealing directly with individuals and small businesses; business banking , providing services to mid-market business; corporate banking, directed at large business entities; private banking , providing wealth management services to high net worth individuals and families; and investment banking , relating to activities on the financial markets . Most banks are profit-making, private enterprises. However, some are owned by government, or are non-profit organizations .

• Commercial bank : the term used for a normal bank to distinguish it from an investment bank. After the Great Depression , the US Congress required that banks only engage in banking activities, whereas investment banks were limited to capital market activities. Since the two no longer have to be under separate ownership, some use the term “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. Typically, membership is restricted to employees of a particular company, residents of a defined neighborhood, members of a certain labor union or religious organizations, and their immediate families.
• Postal savings banks : savings banks associated with national postal systems.
• Private banks : banks that manage the assets of high net worth individuals. Historically a minimum of USD 1 million was required to open an account, however, over the last years many private banks have lowered their entry hurdles to USD 250,000 for private investors.
• Offshore banks : banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks.
• Savings bank : in Europe, savings banks took their roots in the 19th or sometimes even in the 18th century. Their original objective was to provide easily accessible savings products to all strata of the population In some countries, savings banks were created on public initiative; in others, socially committed individuals created foundations to put in place the necessary infrastructure.
• 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.

Types of 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. Unlike venture capital firms , they tend not to invest in new companies.

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