Section Contents:- For centuries, the banking industry only dealt with businesses, not consumers.(More...)
- Investment Products and Services are available through U.S. Bancorp Investments, Inc., an investment advisor and brokerage subsidiary of U.S. Bancorp and an affiliate of U.S. Bank.(More...)
For centuries, the banking industry only dealt with businesses, not consumers. Commercial lending today is a very intense activity, with banks carefully analysing the financial condition of their business clients to determine the level of risk in each loan transaction. Banking services have expanded to include services directed at individuals, and risk in these much smaller transactions are pooled.
[1] In recent history, investors have demanded a more stable revenue stream and banks have therefore placed more emphasis on transaction fees, primarily loan fees but also including service charges on an array of deposit activities and ancillary services (international banking, foreign exchange, insurance, investments, wire transfers, etc.).
[1] Banks are susceptible to many forms of risk which have triggered occasional systemic crises. Risks include liquidity risk (the risk that many depositors will request withdrawals beyond available funds), credit risk (the risk that those who owe money to the bank will not repay), and interest rate risk (the risk that the bank will become unprofitable if rising interest rates force it to pay relatively more on its deposits than it receives on its loans), among others.
[1] 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 account, accepting term deposits and by issuing debt securities such as banknotes and bonds.
[1] A banker or bank is a financial institution that acts as a payment agent for customers, and borrows and lends money. In some countries such as Germany and Japan banks are the primary owners of industrial corporations while in other countries such as the United States banks are prohibited from owning non-financial companies. The first modern bank was founded in Italy in Genoa in 1406, its name was Banco di San Giorgio (Bank of St. George).
[1] Banks also normally use mail to deliver periodic account statements to customers. Telephone banking is a service provided by a financial institution which allows its customers to perform transactions over the telephone. This normally includes bill payments for bills from major billers (e.g. for electricity).
[1] First Bank (a very large bank) is involved in commercial and retail lending, and its subsidiaries in tax-havens offer offshore banking services to customers in other countries. Other large financial institutions are similarly diversified and engage in multiple activities.
[1] In Europe and Asia, big banks are very diversified groups that, among other services, also distribute insurance, hence the term bancassurance is the term used to describe the sale of insurance products in a bank. The word is a combination of "banque or bank" and "assurance" signifying that both banking and insurance are provided by the same corporate entity.
[1] Currently in most jurisdictions commercial banks are regulated by government entities and require a special bank licence to operate. Usually the definition of the business of banking for the purposes of regulation is extended to include acceptance of deposits, even if they are not repayable to the customer's order, however money lending, by itself, is generally not included in the definition.
[1] 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.
[1] Banking law is based on a contractual analysis of the relationship between the bank and the customer.
[1] After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital market activities.
[1] Building societies and Landesbanks : conduct retail banking. Ethical banks : banks that prioritize the transparency of all operations and make only what they consider to be socially-responsible investments.
[1] Investment banks " underwrite " (guarantee the sale of) stock and bond issues, trade for their own accounts, make markets, and advise corporations on capital markets activities such as mergers and acquisitions.
[1] Lending activities, however, still provide the bulk of a commercial bank's income. In the past 10 years American banks have taken many measures to ensure that they remain profitable while responding to increasingly changing market conditions. This includes the Gramm-Leach-Bliley Act, which allows banks again to merge with investment and insurance houses.
[1] 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.
[1] Historically, the primary purpose of a bank was to provide loans to trading companies. Banks provided funds to allow businesses to purchase inventory, and collected those funds back with interest when the goods were sold.
[1] Banks borrow most funds borrowed from households and non-financial businesses, and lend most funds lent 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 to.
[1] Banks lend money by making advances to customers on current account, by making instalment loans, and by investing in marketable debt securities and other forms of lending.
[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.
[1] The definition of bank is given above, and the definition of customer is any person for whom the bank agrees to conduct an account.
[1] For example in Hong Kong, most ATMs enable anyone to deposit cash to any customer of the bank's account by feeding in the notes and entering the account number to be credited. Most ATMs enable card holders from other banks to get their account balance and withdraw cash, even if the card is issued by a foreign bank.
[1] The bank must not close a customer's account without reasonable notice to the customer, because cheques are outstanding in the ordinary course of business for several days. These implied contractual terms may be modified by express agreement between the customer and the bank.
[1] The bank may not pay from the customer's account without a mandate from the customer, e.g. a cheque drawn by the customer.
[1] The bank has a lien on cheques deposited to the customer's account, to the extent that the customer is indebted to the bank.
[1] The bank must not disclose the details of the transactions going through the customer's account unless the customer consents, there is a public duty to disclose, the bank's interests require it, or under compulsion of law.
[1] Banks make money from card products through interest payments and fees charged to consumers and transaction fees to companies that accept the cards.
[1] ATM is a computerised telecommunications device that provides a financial institution's customers a method of financial transactions in a public space without the need for a human clerk or bank teller.
[1] Instead of interest, the bank earns profit (mark-up) and fees on financing facilities that it extends to the customers.
[1] 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.
[1] Mail is part of the postal system which itself is a system wherein written documents typically enclosed in envelopes, and also small packages containing other matter, are delivered to destinations around the world. This can be used to deposit cheques and to send orders to the bank to pay money to third parties.
[1] The bank engages to pay the customer's cheques up to the amount standing to the credit of the customer's account, plus any agreed overdraft limit.
[1] The bank engages 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.
[1] The bank has a right to combine the customer's accounts, since each account is just an aspect of the same credit relationship.
[1] Some types of entity may be partly or wholly exempt from bank licence requirements and are regulated by separate regulators, e.g. building societies and credit unions.
[1] Community development banks : regulated banks that provide financial services and credit to under-served markets or populations.
[1] 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.
[1] Loans are a bank"s primary asset category and when loan quality becomes suspect, the foundation of a bank is shaken to the core.
[1] All banks with FDIC-insured deposits have the FDIC as a regulator; however, for examinations, the Federal Reserve is the primary federal regulator for Fed-member state banks; the Office of the Comptroller of the Currency ("OCC") is the primary federal regulator for national banks; and the Office of Thrift Supervision, or OTS, is the primary federal regulator for thrifts.
[1] Regulators place added pressure on banks to manage the various categories of risk.
[1] Most banks now have more ATMs than branches, and ATMs are providing a wider range of services to a wider range of users.
[1] The U.S. had by far the most banks (7,540 at end-2005) and branches (75,000) in the world. The large number of banks in the U.S. is an indicator of its geography and regulatory structure, resulting in a large number of small to medium sized institutions in its banking system.
[1] Prominent examples include the U.S. Savings and Loan crisis in 1980s and early 1990s the Japanese banking crisis during the 1990s, the bank run that occurred during the Great Depression, and the recent liquidation by the central Bank of Nigeria, where about 25 banks were liquidated.
[1] Central banks are normally government owned banks, often charged with quasi-regulatory responsibilities, e.g. supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity to the banking system and act as Lender of last resort in event of a crisis.
[1] Central banks also typically have a monopoly on the business of issuing banknotes. In some countries this is not the case, e.g. in the UK the Financial Services Authority licences banks and some commercial banks, such as the Bank of Scotland, issue their own banknotes in competition with the Bank of England, the UK government's central bank.
[1] Universal banks, more commonly known as a financial services company, engage in several of these activities.
[1] The name bank derives from the Italian word banco "desk/bench", used during the Renaissance by Florentines bankers, who used to make their transactions above a desk covered by a green tablecloth.
[1] State non-member banks are examined by the state agencies as well as the FDIC. National banks have one primary regulator"the OCC. Each regulatory agency has their own set of rules and regulations to which banks and thrifts must adhere.
[1] Unlike most other regulated industries, the regulator is typically also a participant in the market, i.e. government owned bank (a central bank).
[1] Many offshore banks are essentially private banks. Savings bank : in Europe, savings banks take their roots in the 19th or sometimes even 18th century. Their original objective was to provide easily accessible savings products to all strata of the population.
[1] Postal savings banks : savings banks associated with national postal systems.
[1] Commercial bank : the term used for a normal bank to distinguish it from an investment bank.
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Investment Products and Services are available through U.S. Bancorp Investments, Inc., an investment advisor and brokerage subsidiary of U.S. Bancorp and an affiliate of U.S. Bank. [3] Citizens Bank is a brand name of RBS Citizens, N.A. and Citizens Bank of Pennsylvania.
[2] Products and services are offered by Wachovia Bank, N.A. and its affiliates.
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