(1) Personal banking:

• Current account (BrE) / checking account (AmE): to take out or withdraw money (monthly statements: debits and credits)
• Savings / Deposit account: pays more interest but has restrictions
• Credit card
• Debit card: to make withdrawals (at cash dispensers BrE / ATM AmE)
• Cheques (BrE) / check (AmE)
• Bank transfer: standing orders and direct debits
• Loans: fixed sums of money that are lent for a fixed period

Banks have to keep a certain percentage of their assets as reserves for borrowers who want to withdraw their money. This is known as the reserve requirement. (e.g. 10 %)

a., standardized products for personal customers . e.g. personal loans

b., risk assessment methods for corporate customers

Banks have to find a balance between liquidity and different maturities, plus yield and risk.

• Overdrafts: to overdraw an account
• Mortgage: these are long-term loans on which the property act as collateral or a guarantee for a bank – of the borrower doesn’t repay the mortgage, the bank can repossess the house or flat
• Exchange foreign currency
• Sell traveller’s checques
• Offer advice about investments and private pension plans
• Sell insurance products
• E-banking

(2) Financial institutions:

• Retail / commercial banks / High Street bank (BrE)
• Investment banks (AmE) / Merchant banks (BrE)
• gave financial advice
• raised capital – increased the amount of money companies had by issuing stocks or shares and bonds
• organized mergers and takeover bids
• Insurance companies
• provided life insurance and pensions
• Building societies (BrE) / Savings and loans associations (AmE): specialized in mortgages. Many have now become normal commercial banks.

(3) 1980s / 90s: deregulation

Central banks:

• Carry out the government’s monetary policy: trying to control the rate of inflation to maintain financial stability: e.g. changing the interest rates to protect the value of the currency
• Supervises and regulates the banking system and the whole financial sector, providing statistics (changes the reserve – asset ratio) (lender of last resort if there is a bank run orr un on the bank – to bail out a commercial bank)
• Prints and issues currency (intervening on the currency markets – this changes the balance of supply and demand)

       a., narrow money: currency and sight deposits: bank deposits that customers can withdraw whenever they like

      b., broad money: savings deposits and time deposits, money market funds, certificates of deposit, commercial   paper, repurchase agreements

• Clearing cheques
• Settling debts among commercial banks

Private banks: manage the assets of rich people or high net worth individuals

Clearing banks: pass cheques and other payments through the banking system

Non-bank financial intermediaries: such as car manufacturers, food retailers and department stores now offer products like personal loans, credit cars and insurance

Rates:

• Base rate
• Discount rate: the rate that the central bank sets to lend short-term funds to commercial banks

 Exercise 1: Find the right order of answers! 

 Video 1: What does a cashless future mean?

 Video 2: FED’s discount rate

• Margin / spread: banks make their profits from the difference between the interest rates they charge borrowers and the rates they pay to depositors
• Floating / variable interest rate: long-term loans such as mortgages often have this rate – it changes according to the supply and demand for money

Common money market instruments:

• Treasury bills (T-bills): are bonds issued by the governments
• Maturity: is usually three months (or up to one year)
• T-bills in a country’s own currency are generally the safest possible investment. They are usually sold at a discount from their nominal value (par / face value) – the value written on them – rather than paying interest. For example, a T-bill can be sold at 99 % of the value written on it, and redeemed or paid back at 100 % at maturity, three months later.
• Commercial paper is a short-term loand issued by major companies, also sold at a discount. It is unsecured, which means it is not guaranteed by the company’s assets.
• Certificates of deposit (CDs) are short- or medium-term, interest-paying debt insruments – written promises to repay a debt. They are issued by bankt to large depositors who can then trade them in the short-term money markets. They are known as time deposits, because the holder agrees to lend the money – by buying the certificate – for a specified amount of time.
• Repos / repurchase agreement: a combination of two transactions. The dealer hopes to find a long term buyer for the securities before repurchasing them.

 Video 3: Repo

Islamic banking:

• Offer interest-free banking
• They invest in companies and share the profits with their depositors
• Investment financing and trade financing are done on a profit and loss sharing (PLS) basis: consequently, the banks, the depositors, and their borrowers also share the risks of the business (similar to venture / risk capitalists)
• Current accounts: give no return to depositors (safekeeping arrangement)
• Savings accounts can pay a return to depositors, depending on the bank’s profitability (there is no fixed rate of return)
• Investment accounts: fixed-term deposits which cannot be withdrawn before maturity- the capital is not guaranteed!
• Leasing or hire-purchase agreement: buy items for personal customers with a leasing or hire-purchase agreement

 Video 4: The Bank

 Exercise 2: Complete the text with the words in the box.

 Video 5: Henri Arslanian: How FinTech is shaping the future of banking

 Video 6: Chris Skinner: Kids are creating the future bank