Fin 464
Chapter 1: An Overview of the Changing
Financial - Services Sector
Instructor: Rushdy MD Bakth
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Introduction
• A bank is a financial intermediary whose core activity is to channel funds from
savers to borrowers increasing the economic efficiency by productive
allocation of resources.
• Make payments
• Financial advice
• Finance public facilities by purchasing government notes and bonds
• Source of Working capital
• Banks are the principal source of credit (loanable funds) for millions of
individuals and families and for many units of government.
• The credit crisis of 2007-2009 dramatically altered the banking landscape.
• Worldwide banks grant more installment loans to consumers (individuals and
families) than any other financial-service provider.
• Bank and non-bank financial firms are declining in numbers, consolidating into
fewer but also much larger companies.
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What Is a Bank?
A commercial bank can be defined in terms of:
1. The economic functions it performs: They transfer funds from savers to
borrowers and in paying for goods & service
2. The services it offers its customers: Bank services have expanded from
traditional services (checking & debit accounts, credit cards, savings plans,
loans) and including investment banking, insurance protection, financial
planning, advice for merging companies, the sale of risk-management
services, and so on.
3. The legal basis for its existence: A bank is any business offering deposits
subject to withdrawal on demand and making commercial or business nature
loans.
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What Is a Bank? (continued)
▫ As organizations bearing the label of banks (investment banks,
mortgage banks, merchant banks, universal banks) and several
industrial companies invaded to control bank or offer bank like services,
regulators decided to add another factor so that they can’t claim
exemption from being regulated as a bank.
▫ Congress then defined a bank as any institution that could qualify for
deposit insurance administered by the Federal Deposit Insurance
Corporation (FDIC)
▫ In the U.S., a bank had come to be defined, not so much by its array of service offerings,
but by the government agency insuring its deposits.
▫ In Bangladesh, Bank Deposit Insurance Scheme (BDIS) run under Central Bank of
Bangladesh
Economic Function –
Flow Of Funds
Receives Interest
Borrows
Deposits
Surplus Units/
Depositors/
Savers
Bank
Deficit Units/
Borrowers/
Users
Receives Interest
Pays Interest
Bank’s Margin = Interest received from borrower – Interest paid to the depositors
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The Services Banks Offer Public
A. Services Banks Have Offered Throughout
History:
1. Carrying out currency exchange.
2. Discounting commercial notes & making business
loans.
3. Offering savings deposits.
4. Safekeeping of valuables & certification of value.
5. Supporting government activities with credit.
6. Offering checking accounts (Demand deposits).
7. Offering trust services (managing financial
affairs/property, trustee for wills)
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The Services Banks Offer Public----Contd
B. Services Banks have Developed More Recently:
1.
Granting Consumer Loans.
2.
Financial Advising.
3.
Cash Management.
4.
Offering Equipment Leasing.
5.
Making Venture Capital Loans.
6.
Selling Insurance.
7.
Selling Retirement Plans
8.
Security Brokerage.
9.
Offering Mutual Funds & Annuities.
10. Offering Merchant Banking Services.
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The Services Banks Offer Public----Contd
C. Recent Trends Affecting All Banks:
1. Service Proliferation.
2. Rising Competition.
3. Deregulation.
4. Rising Funding Costs.
5. An Increasingly Interest-Sensitive mix of Funds.
6. A Technological revolution.
7. Consolidation & geographical Expansion.
8. Globalization of banking.
9. Increased risk of failure.
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Considerations While Choosing a Bank
1.
Features
2.
Services
3.
Fees
4.
ATMs
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Considerations While Choosing a
Bank…Contd.
1. Features
 Interest Rate (Annual percentage yield)
 Convenience
 FDIC membership
 Size
 Minimum deposit
 Limitations
 Availability of Funds
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Considerations While Choosing a
Bank…Contd.
2.
Services
direct
access
deposit
ATMs
banking
by telephone (what can
you do over the phone, and when?)
online banking
credit cards
debit cards
overdraft protection
canceled checks (included with
monthly statements?)
loans and mortgages
stock and mutual fund trading
retirement planning services
small business services
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to international money
markets
copies of previous monthly
statements
deposit slips and other slips
phone support
talking to a teller in person
debit card fees
traveler's checks
loan application processing
safe deposit box rental
stop payment
wire transfer
money order
Considerations While Choosing a
Bank…Contd.
3. Fees

Maintenance fees

Low-balance penalty

ATM surcharges, "Foreign" ATM fees

Returned check

Bounced check

Overdraft Protection

Check printing

Per-check charges

Cancelled check return fees

Closed account
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Considerations While Choosing a
Bank…Contd.
4. ATMs
Once you have an account, balance your checkbook
on a regular basis, to make sure that the bank hasn't
made any errors and so that you know how much you
have in your account. Also understand every fee you
are charged, and complain about any that you don't
agree with. Take a look at any inserts that accompany
your monthly statement, because banks are required
to disclose any fee changes, and that's where you'll
find out about them.
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Leading Competitors with
Banks

Saving Associations

Credit Unions

Fringe Banks

Money Market Funds

Mutual Funds

Hedge Funds

Security Brokers and dealers

Investment Banks

Finance Companies

Financial Holding Companies

Life and Property/casualty insurance companies
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Types of Banks
 Commercial Banks
 Money Center Banks
 Community Banks
 Saving Banks
 Cooperative Banks
 Mortgage Banks
 Investment Banks
 Merchant Banks
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Types of Banks
 International Banks
 Wholesale Banks
 Retail Banks
 Affiliated Banks
 Virtual Banks
 Fringe Banks
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