Types of Banking
What are the 4 types of banking services used by small firms?
1 Payment Services 2 Debt finance 3 Equity finance 4 Special financing
What are the additional types of funding for small firms?
1) Asset-based finance 2) Factoring and Invoice discount 3) Shareholders and partners 4) Trade credit 5) Venture credit
Define: Wholesale lockbox facilities
Centralised collection service for corporate payments is used to reduce the delay in cheque payment and receipt
Who is the main provider of credit to the household and corporate sector and operates the payments mechanism.
Commercial banks
Define: Private banking
Concerns the high-quality provision of a range of financial and related services to wealthy clients
What is the main profit of traditional banks?
Interest Income
Define: Funds concentration
Redirects funds from accounts in a large number of different banks or branches to a few centralised accounts at one bank
Define: Guarantees
Relate to a bank underwriting the obligations of a third party and thereby assuming the risk of the transaction
What is the difference between commercial and savings banks?
Savings banks are mutually owned, being owned by their 'members' or 'shareholders'
Define: Eurobonds
Securities that are issued, and largely sold, outside the domestic market of the currency in which they are denominated
Define: Commitments
Services where a bank commits to provide funds to a company at a later date for which it receives a fee
Define: Corporate Banking
The banking services provided to companies, although typically they are relatively large firms.
Define: Finance Houses
Provide finance to individuals by making consumer, commercial and other types of loans.
When did capital restrictions start to disappear?
1980s
Define: Account reconciliation services
A current account feature that provides a record of the firm's cheques that have been paid by the bank
The combination of insurance and banking is known as...
Bancassurance
Formal equity finance is available from?
Banks Special investment schemes Private equity Venture capital firms.
Investment banks will deal with retail customers, True or False?
False
How do Finance Houses and Commercial Banks differ?
Finance Houses differ from banks because they typically do not take deposits and raise funds by issuing money market instruments.
Define: Syndicated loans
Loans that are provided by a group of lenders as the value is too large to borrow from just one bank
What is the purpose of the Basel Ratios?
Minimum capital requirements
Define: Credit Unions
Non-profit co-operative institutions that are owned by their members who pool their savings and lend to each other
Define: Informal equity finance
Private financing by so-called 'business angels'
What are the characteristics of a building society?
They have mutual ownership and focus primarily on retail deposit taking and mortgage lending.
What are the main types of funding for small firms?
Traditional bank loan Overdraft finance Credit Cards
What is proprietary trading?
When an investment bank trades with it's own funds
What are the cash management services for medium sized firms?
• Account reconciliation services • Wholesale lockbox facilities • Funds concentration • Electronic funds transfer • Cheque deposit services • Electronic sending of letters or credit • Treasury management software • Computerised pension fund services • Online corporate advisory and risk management services • Electronic data interchange
Reasons for increased bancassurance:
• Cross-selling opportunities for banks • Non-interest income boosted at a time of decreasing interest margins • Risk diversification • Banks converting into full-service financial firms
What are the bank services provided to large firms?
• Forward foreign exchange transactions • Currency futures • Currency options • Interest rate options. • Interest rate caps and collars • Interest rate and currency swaps
The basic rules of Islamic Banking are..
• Profit of the enterprise can be distributed in any proportional by mutual consent. However, it is not permissible to fix a lump sum profit for anyone. • In case of loss, it has to be shared strictly in proportion to the capital contributions. • All partners contribute capital and management. However, it is possible for any partner to be exempted from contributing labour/management. • The liability of all partners is unlimited.