chapter 7 types of banks - ibrahim sameer...types of banks ibrahim sameer (mba - specialized in...

Chapter 7

Types of BanksIbrahim Sameer (MBA - Specialized in Finance,

B.Com – Specialized in Accounting & Marketing)

www.ibrahimsameer.wordpress.com

What Is a Banking System?

• When you sit back and think about it, banks are

often a huge part of our lives.

What Is a Banking System?

• We deposit our paychecks, take out loans, and set

up savings accounts, all at a bank.

What Is a Banking System?

• But what do banks do? What are the different

types of banks?

What Is a Banking System?

• Let's start finding some answers to these

questions by looking at the different types of banks

that make up a banking system.

What Is a Banking System?

• A banking system is a group or network of

institutions that provide financial services for us.

What Is a Banking System?

• These institutions are responsible for operating a

payment system, providing loans, taking deposits,

and helping with investments.

Functions of Banking System

• Banking systems perform several different

functions, depending on the network of institutions.

Functions of Banking System

• For example, payment and loan functions at

commercial banks allow us to deposit funds and

use our checking accounts and debit cards to pay

our bills or make purchases.

Functions of Banking System

• They can also help us finance our cars and homes.

Functions of Banking System

• By comparison, central banks or systems

distribute currency and establish money-

related policies.

Functions of Banking System

• Investment banks or systems conduct trades or

deal with capital markets.

Functions of Banking System

• Many banks are profit-seeking entities with

stockholders. They obtain profits by charging

more interest for loans and paying less interest

on deposits.

Functions of Banking System

• For example, a bank may charge a 6% interest

rate on a 30-year, fixed rate mortgage, but offer an

interest rate of only 1% on a savings account of

$100,000.

Different Types of Banks

Retail Bank

Commercial Bank

Corporative Bank

Investment Bank

Exim Bank

Central Bank

Merchant Bank

Retail Bank

• Retail Banks provide basic banking services to

individual consumers.

Retail Bank

• Retail banking, also known as consumer banking.

These are the local branch of the commercial bank

you see in your neighborhood everyday. For

example BML branch in Ungoofaaru

Retail Bank

• Products and services include safe deposit boxes,

checking and saving account, CDs, mortgages and

car loan.

Commercial Bank

• A commercial bank is a financial institution that is

authorized by law to receive money from

businesses and individuals and lend money to

them. Commercial banks are open to the public

and serve individuals, institutions, and businesses.

Commercial Bank

• A commercial bank is almost certainly the type of

bank you think of when you think about a bank

because it is the type of bank that most people

regularly use.

Commercial Bank

• Banks are regulated by federal and state laws

depending on how they are organized and the

services they provide. Commercial banks are also

monitored through the MMA in Maldives.

Commercial Bank

• A commercial bank is authorized to serve the

following functions:

Commercial Bank

• Receive deposits - take money in from individuals

and businesses (called depositors).

Commercial Bank

• Disburse payments - make payments upon the

direction of its depositors, such as honoring a

check.

Commercial Bank

• Collections - a bank will act as your agent to collect

funds from another bank payable to you, such as

when someone pays you by check drawn on an

account from a different bank.

Commercial Bank

• Safeguard money - banks are considered a safe

place to store your wealth.

Commercial Bank

• Maintain and service savings and checking

accounts of its depositors.

Commercial Bank

• Lend money

Cooperative Bank

• Co-operative banks are registered normally under

the deferral law. They generally give credit

facilities to small farmers, salaried employees,

small-scale industries, etc. Co-operative Banks are

available in rural as well as in urban areas. The

functions of these banks are just similar to

commercial banks.

Cooperative Bank

• In Maldives we don’t have cooperative bank so far

but in some other countries they do have.

• Lets look into some examples now:

Cooperative Bank

• Metro South Coop Bank (Philippines)

Cooperative Bank

• Apna Sahakari Co-Op Bank Ltd. (India)

Cooperative Bank

• The Surat People’s Co-op Bank Ltd. (India)

Cooperative Bank

• The Kalupur Commercial Co-op Bank Ltd. (India)

Investment Bank

• Investment banks are special type of bank involved

in a variety of large and complex financial services

for major institution.

Investment Bank

• Unlike commercial and retail banks investment

bank do not take deposits.

Investment Bank

• Top 5 major investment bank in the globe are as

follows:

Investment Bank

• JP Morgan Chase

Investment Bank

• Goldman Sachs

Investment Bank

• Bank of America Merill Lynch

Investment Bank

• Morgan Stanley

Investment Bank

• Citi Group

Investment Bank

• Some of the main functions of investment bank

include the following:

Investment Bank

• Investment bank help companies to raise capital.

Investment Bank

• Do you know that in 2016 JP Morgan & Goldman

Sachs received (in the form of revenue) more than

$96.60 & $39.20 Billion respectively.

Investment Bank

• In 2016 Assets under management (AUM) (Assets

under management (AUM) is the total market

value of assets that an investment company or

financial institution manages on behalf of

investors) of JP Morgan is around $2.4 Trillion.

Investment Bank

• They advice companies on issuing new debt and

securities.

Investment Bank

• IPO Deals: When the company decided to be

listed in stock market for the first time so that

common people can buy shares is called IPO. In

such case investment bank helps to get such

offering. They help of price and to market for

wealthy clients and earns commission on money

raised.

Investment Bank

• Mergers and acquisition.

• In 2011 Microsoft offers to buy Skype, Skype

approach JP Morgan to help them to get right deal;

paying $30 million fees to them.

Exim Bank

• It is popularly known as ‘Export Import Bank’. Such

banks provide long term financial assistance to

the exporters and importers.

Central Bank

• Every country of the world has a central bank. In

Maldives central bank is Maldives Monetary

Authority (MMA).

Central Bank

• In India, Reserve Bank of India, in U.S.A, Federal

Reserve and in U.K, Bank of England.

Central Bank

• These central banks are the bankers of the other

banks. They provide specialized functions i.e.

issue of paper currency, working as bankers of

government, supervising and controlling foreign

exchange. A central bank is a non-profit making

institution. It does not deal with the public but it

deals with other banks. The principal responsibility

of Central Bank is thorough control on currency of

a country.

Merchant Bank

• A merchant bank is a financial institution that

perform underwriting, loan services, financial

advising and fund raising services to large

corporation and high net worth individuals.

Merchant Bank

• A merchant bank do not provide regular banking

services such as offering checking the accounts to

general public and in fact merchant bank don’t

take deposit from public.

Merchant Bank

• A vast majority of merchant banking activity

involves international transections. For example

ABC Company want to buy a company in another

country they will higher a merchant bank to advice

them to the best way to structure the transection.

Merchant Bank

• The merchant bank might also help ABC by

financing the transection through underwriting or

some type of syndicated loan arrangement.

Merchant Bank

• Merchant bank are very much like investment

bank.

Merchant Bank

• But because of their specialty in international

transection their emphasis is on providing services

to multinational corporation and high net worth

individuals that do business in more than one

nation.

What else you want to know?

Questions & Answers

Thank You

Ibrahim SameerSeek knowledge from cradle to grave