Commercial Bank Commercial Bank ManagementManagement

Chapter # 01

Introduction to the Business of Banking & Financial Services

Management

What is a Commercial Bank?What is a Commercial Bank?

Certainly banks can be identified by the functions they perform in the economy.

They are involved in transferring funds from savers to borrowers (financial intermediation) and in paying for goods & services.

Banks no longer limit their service offerings to traditional banking services but have increasingly become general financial service providers.

Indeed many financial service institutions are trying to be as similar to banks as possible in the services they offer.

What is a Commercial Bank?What is a Commercial Bank?

BankBank

A financial intermediary

accepting deposits subject to

withdrawal on demand & granting

loans; offers the widest menu of

services of any financial institution.

• In 1980s several large insurance & security firms, like Merill Lynch, Dreyfus Corp. & Prudential moved to enter the banking business by establishing Nonbank banks.

•Their motive was to avoid the regulations imposed to the banks.

Nonbank BanksNonbank Banks

Depositor institutions

offering checking accounts or

commercial loans but not both.

• In 1987, Congress put a halt to further nonbank bank expansion by providing the same regulatory restriction to them as the banks.

• In 1990s banks with adequate capital were allowed to offer a wide range services.

• In November 1999, the Financial Services Modernization Act was passed, allowing banks and other financial service providers to build banking-insurance-security conglomerates that may offer an incredible wide range of services.

Nonbank CompetitorsNonbank CompetitorsInsurance Co.

&Pension Plans

Mutual Funds

Credit Union

& Other Thrifts

Security Brokers

& Dealers

Finance Companies

Commercial Banks

Real Estate& Mortgage Companies

Depository InstitutionsDepository Institutions• Commercial Bank

• Savings & Loan Association: Specialize in selling savings deposit & granting home mortgage loans and other forms of credit to individuals & families.

• Savings Banks: Sell savings deposit, grant consumer and home mortgage loans, and invest in high quality securities.

• Credit Union

Non Depository InstitutionsNon Depository Institutions

• Insurance Companies: Life Insurance

General Insurance

• Pension Fund: Private Vs Govt.

• Money Market Funds: Collect short term, liquid funds from individuals & institutions buying shares in the fund and invest these monies in high quality securities of short duration.

• Mutual Funds

• Finance Companies

• Mortgage Companies

• Securities Firm

• Hedge Funds: Sell shares to mainly upscale investors in a broad group of different kinds of assets

• Financial Holding Companies & Conglomerates

Non Depository InstitutionsNon Depository Institutions

Types of BankTypes of Bank• Commercial bank

• Savings bank

• Cooperative bank

• Mortgage bank

• Community bank

• Money centre bank

• Merchant bank

Types of BankTypes of Bank• International bank• Wholesale bank• Retail bank• Bankers’ Bank• Minority Bank• National Bank• Insured Bank• Member Bank

The Services Banks Offer The PublicThe Services Banks Offer The Public

Services Banks Have Offered Throughout History

• Carrying Out Currency Exchanges

• Discounting Commercial Notes & Making Business Loans

• Offering Savings Deposits

Services Banks Have Offered Services Banks Have Offered Throughout HistoryThroughout History

• Safekeeping of Valuables & Certification of Values

• Supporting Govt. Activities With Credit

• Offering Checking Accounts

• Offering Trust Services

Services Banks Have Developed Services Banks Have Developed More RecentlyMore Recently

•Granting Consumer Loan

•Financial Advising

•Cash Management

•Offering Equipment Leasing

• Making Venture Capital Loans

• Selling Insurance Services

• Selling Retirement Plans

Services Banks Have Services Banks Have Developed More RecentlyDeveloped More Recently

Dealing in SecuritiesDealing in Securities

•Offering Mutual Fund & Annuities

•Merchant Banking Services

Trends Affecting All BanksTrends Affecting All Banks

o Service Proliferation

o Rising Competition

o Deregulation

o Rising Funding Cost

o An Increasingly Interest –Sensitive Mix of Funds

Trends Affecting All BanksTrends Affecting All Banks

o Technological Revolution

o Consolidation & Geographic Expansion

o Globalization of Banking

o Increased Risk of Failure

Top 10 Banks In WorldTop 10 Banks In World Rank Bank Asset

01 Barclays PLC, London, UK 1,586,879

02 UBS AG, Zurich, Switzerland 1,563,282

03 BNP Paribas SA, Paris, France 1,483,934

04 The Royal Bank of Scotland Group plc, Edinburgh, UK

1,300,124

05 Credit Agricole SA, Paris, France 1,251,997

06 Deutsche Bank AG, Germany 1,170,277

07 Bank of America NA, Charlotte, USA 1,170,277

08 ABN AMRO Holding NV, Amsterdam, Netherlands

1,038,929

09 Credit Suisse Group, Zurich, Switzerland 1,016,050

10 JP Morgan Chase Bank National Association, New York, USA

1,013,985

•Thank You All