Banking Activities and Services

Banking: Principles, Practice and Regulation (FINA1094)

•Commercial and Investment Banking

What do banks do?

A simplified bank balance sheet:

          Assets                        Liabilities

      Cash                            Customer deposits

      Liquid assets               Market borrowing

      Loans                           Equity

      Other investments

      Fixed assets

      Total                             Total

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Defining a bank

•Easy to define banks in era of rigid demarcations of financial services industry – i.e. deposit-taking financial institutions (as distinct from non-deposit-taking financial institutions, discussed last week).

•Definition has become problematic due to regulatory change, overlapping activities, growth of financial conglomerates, etc.

•Some writers still draw distinctions based on the deposit-taking and/or the intermediary role of financial institutions.

Banks’ activities I

•UK’s Financial Services and Markets Act (2000) defines activities banks may engage in as including:

     - accepting deposits;

     - issuing e-money (i.e electronic money used on the internet);

     - implementing or carrying out contracts of insurance as principal;

     - dealing in investments (as principal or agent);

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Banks’ activities II

Banks’ activities cont’d:

    - managing investments;

    - advising on investments;

    - safeguarding and administering investments;

    - arranging deals in investments and arranging regulated mortgage activities;

Banks’ activities III

Banks’ activities cont’d:

    - advising on regulated mortgage activities;

    - entering into and administering regulated mortgage contracts;

    - establishing and managing collective investment schemes (e.g. investment funds and mutual funds);

    - establishing and managing pension schemes.

Banking services I

1.Payment services (organised arrangements for transferring value between its participants):

    -...