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.