The Banking Industry

Top 10 - 2016 Retail Banking Trends and Predictions

1. The 'Platformification' of Banking 2. Removing Friction from the Customer Journey 3. Making Big Data Actionable 4. Introduction of 'Optichannel' Delivery 5. Expansion of Digital Payments 6. Executing on Innovation 7. Exploring Advanced Technologies 8. Emergence of a New Breeds of Banks 9. Mining New Talent 10. Responding to Regulatory and Rate Changes

liabilities

Deposits are the banks' ________. If everyone was to demand their money back at once, the bank would not be able to pay. Because they lend money out, banks are required to carry a cushion of capital so they have sufficient money to pay those customers likely to withdraw their money at any time.

margin

The banks lend money to customers at a higher rate than they pay to depositors or than they borrow it. The difference, known as the ______ or turn, is kept by the bank. For example, if a bank pays 1% interest on deposits, they may charge 6% interest on loans.

three

There are _____ main ways banks make money: by charging interest on money that they lend, by charging fees for services they provide and by trading financial instruments in the financial markets.

Lending

______ takes the form of overdrafts, bank loans, mortgages (loans secured on property) and credit card facilities. The bank will work out the cost of making the funds available to the borrower and add a profit margin.

Investment banks

_________ _____ charge fees for advising clients wanting to bid for other companies in mergers and acquisitions, or management buy-outs. These deals can be very complex and provide an important source of income as well as an opportunity to underwrite shares related to these deals.

interbank

If a bank has a surplus of liquid (available) assets then the bank can make money by lending these assets to other banks in the _________ market. As money flows in and out, banks will both lend and borrow money on the _________ market as needs require.

securities

Investment banks also make their money by trading __________ in the secondary markets. Their aim is to sell these __________ for more than they pay for them or purchase them for less than they sold them. The difference, called the turn, is kept by the bank.

huge fees

Investment banks earn ____ ____ for advising large companies and public institutions on issuing bonds and shares (securities), and from underwriting these issues.

higher rate

Loans approved by banks will vary in size, and may have fixed or variable interest rates but, in all cases, the bank will lend the money to the customer at a ______ ____ than they borrow it.

bond

A ____ is a debt security, similar to an IOU. Borrowers issue _____ to raise money from investors willing to lend them money for a certain amount of time. When you buy a ____, you are lending to the issuer, which may be a government, municipality, or corporation.

How does banks work?

A bank works by paying people small amounts to lend them money, then lending that money onto others for larger amounts. They manage that whole process, and then keep the difference between the large amount (interest on loans) and small amount (interest from a savings account).

currencies

Banks also buy and sell _________ of all the nations of the world, trying to take advantage of the different prices of these _________ against each other, which are changing all the time.

huge scale

Banks also lend to each other on a huge scale. Most of this lending is on a short-term basis, usually no longer than three months, often just overnight

liquid

An asset is said to be ______ if it is easy to sell or convert into cash without any loss in its value.

charging fees

Another way banks make money is through ________ ____. Most retail and commercial banks will charge for specific services, for example, for processing cheques, for other transactions and for unauthorised borrowing e.g. if a client exceeds an overdraft limit.

debt

Bonds are ___, whereas stocks are equity. This is the important distinction between the two securities. By purchasing equity (stock) an investor becomes an owner in a corporation. By purchasing debt (bonds) an investor becomes a creditor to the corporation (or government).

Example of bonds

For example, say you buy a bond with a face value of $1,000, a coupon of 8%, and a maturity of 10 years. This means you'll receive a total of $80 ($1,000*8%) of interest per year for the next 10 years. Actually, because most bonds pay interest semi-annually, you'll receive two payments of $40 a year for 10 years. When the bond matures after a decade, you'll get your $1,000 back.

deposit

Retail and commercial banks need lots of customers to deposit their money with them, as the banks use these deposits to earn enough money to stay in business.

interest

To encourage people to keep their money in a bank, the bank will pay them a small amount of money (_________). This __________ is paid from the money the bank earns by lending out the deposited money to other customers.