A commercial bank is a type of financial intermediary and a type of bank. Commercial banking is also known as business banking. It is a bank that provides checking accounts, savings accounts, and money market accounts and that accepts time deposits.After the Great Depression, the U.S. Congress required that banks engage only in banking activities, whereas investment banks were limited to capital market activities. As the two no longer have to be under separate ownership under U.S. law, some use the term "commercial bank" to refer to a bank or a division of a bank primarily dealing with deposits and loans from corporations or large businesses. In some other jurisdictions, the strict separation of investment and commercial banking never applied. Commercial banking may also be seen as distinct from retail banking, which involves the provision of financial services direct to consumers. Many banks offer both commercial and retail banking services.
Possible meanings
Commercial bank has two possible meanings:
Commercial bank is the term used for a normal bank to distinguish it from an investment bank.
This is what people normally call a "bank". The term "commercial" was used to distinguish it from an investment bank. Since the two types of banks no longer have to be separate companies, some have used the term "commercial bank" to refer to banks that focus mainly on companies. In some English-speaking countries outside North America, the term "trading bank" was and is used to denote a commercial bank. During the great depression and after the stock market crash of 1929, the U.S. Congress passed the Glass-Steagall Act 1933-35 (Khambata 1996) requiring that commercial banks engage only in banking activities (accepting deposits and making loans, as well as other fee based services), whereas investment banks were limited to capital markets activities. This separation is no longer mandatory.
It raises funds by collecting deposits from businesses and consumers via cheakable deposits, savings deoposits, and time (or term) deposits. It makes loans to businesses and consumers. It also buys corporate bonds and government bonds. Its primary liabilities are deposits and primary assets are loans and bonds.
Commercial banking can also refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses, as opposed to normal individual members of the public (retial banking).
Origin of the word
The name bank derives from the Italian word banco "desk/bench", used during the Renaissance by Florantine bankers, who used to make their transactions above a desk covered by a green tablecloth.However, traces of banking activity can found even in ancient times.
In fact, the word traces its origins back to the Ancient Roman Empire, where moneylenders would set up their stalls in the middle of enclosed courtyards called macella on a long bench called a bancu, from which the words banco and bank are derived. As a moneychanger, the merchant at the bancu did not so much invest money as merely convert the foreign currency into the only legal tender in Rome- that of the Imperial Mint.
The role of commercial banks
Commercial banks engage in the following activities:
processing of payments by way of telegraphic transfer, EFTPOS, internet banking, or other means
issuing bank drafts and bank cheques
accepting money on term deposits
lending money by overdraft, installment loan, or other means
providing documentary and standby letter of credit, guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposures
safekeeping of documents and other items in safe deposits boxes
sale, distribution or brokerage, with or without advice, of insurance, unit trusts and similar financial products as a “financial supermarket”
traditionally, large commercial banks also underwrite bonds, and make markets in currency, interest rates, and credit-related securities, but today large commercial banks usually have an investment bank arm that is involved in the mentioned activities.
Wednesday, October 14, 2009
World Bank Institute
The World Bank Institute (WBI) creates learning opportunities for countries, World Bank staff and clients, and people committed to poverty reduction and sustainable development. WBI's work program includes training, policy consultations, and the creation and support of knowledge networks related to international economic and social development.
Global Development Learning Network
The Global Development Learning Network (GDLN) is a partnership of over 120 learning centers (GDLN Affiliates) in nearly 80 countries around the world. GDLN Affiliates collaborate in holding events that connect people across countries and regions for learning and dialogue on development issues.
GDLN clients are typically NGOs, government, private sector and development agencies who find that they work better together on subregional, regional or global development issues using the facilities and tools offered by GDLN Affiliates. Clients also benefit from the ability of Affiliates to help them choose and apply these tools effectively, and to tap development practitioners and experts worldwide. GDLN Affiliates facilitate around 1000 videoconference-based activities a year on behalf of their clients, reaching some 90,000 people worldwide. Most of these activities bring together participants in two or more countries over a series of sessions. A majority of GDLN activities are organized by small government agencies and NGOs.
GDLN Asia Pacific
The GDLN in the East Asia and Pacific region has experienced rapid growth and Distance Learning Centers now operate, or are planned in 20 countries: Australia, Mongolia, Cambodia, China, Indonesia, Singapore, Philippines, Sri Lanka, Japan, Papua New Guinea, South Korea, Thailand, Laos, Timor Leste, Fiji, Afghanistan, Bangladesh, India, Nepal and New Zealand. With over 180 Distance Learning Centers, it is the largest development learning network in the Asia and Pacific region. The Secretariat Office of GDLN Asia Pacific is located in the Center of Academic Resources of Chulalongkorn University, Bangkok, Thailand.
GDLN Asia Pacific was launched at the GDLN’s East Asia and Pacific regional meeting held in Bangkok from 22 to 24 May 2006. Its vision is to become “the premier network exchanging ideas, experience and know-how across the Asia Pacific Region”. GDLN Asia Pacific is a separate entity to The World Bank. It has endorsed its own Charter and Business Plan and, in accordance with the Charter, a GDLN Asia Pacific Governing Committee has been appointed.
The committee comprises China (2), Australia (1), Thailand (1), The World Bank (1) and finally, a nominee of the Government of Japan (1). The organization is currently hosted by Chulalongkorn University in Bangkok, Thailand, founding member of the GDLN Asia Pacific.
The Governing Committee has determined that the most appropriate legal status for the GDLN AP in Thailand is a “Foundation”. The World Bank is currently engaging a solicitor in Thailand to process all documentation in order to obtain this legal status.
GDLN Asia Pacific is built on the principle of shared resources among partners engaged in a common task, and this is visible in the organizational structures that exist, as the network evolves. Physical space for its headquarters is provided by the host of the GDLN Centre in Thailand – Chulalongkorn University; Technical expertise and some infrastructure is provided by the Tokyo Development Learning Centre (TDLC); Fiduciary services are provided by Australian National University (ANU) Until the GDLN Asia Pacific is established as a legal entity tin Thailand, ANU, has offered to assist the governing committee, by providing a means of managing the inflow and outflow of funds and of reporting on them. This admittedly results in some complexity in contracting arrangements, which need to be worked out on a case by case basis and depends to some extent on the legal requirements of the countries involved.
Global Development Learning Network
The Global Development Learning Network (GDLN) is a partnership of over 120 learning centers (GDLN Affiliates) in nearly 80 countries around the world. GDLN Affiliates collaborate in holding events that connect people across countries and regions for learning and dialogue on development issues.
GDLN clients are typically NGOs, government, private sector and development agencies who find that they work better together on subregional, regional or global development issues using the facilities and tools offered by GDLN Affiliates. Clients also benefit from the ability of Affiliates to help them choose and apply these tools effectively, and to tap development practitioners and experts worldwide. GDLN Affiliates facilitate around 1000 videoconference-based activities a year on behalf of their clients, reaching some 90,000 people worldwide. Most of these activities bring together participants in two or more countries over a series of sessions. A majority of GDLN activities are organized by small government agencies and NGOs.
GDLN Asia Pacific
The GDLN in the East Asia and Pacific region has experienced rapid growth and Distance Learning Centers now operate, or are planned in 20 countries: Australia, Mongolia, Cambodia, China, Indonesia, Singapore, Philippines, Sri Lanka, Japan, Papua New Guinea, South Korea, Thailand, Laos, Timor Leste, Fiji, Afghanistan, Bangladesh, India, Nepal and New Zealand. With over 180 Distance Learning Centers, it is the largest development learning network in the Asia and Pacific region. The Secretariat Office of GDLN Asia Pacific is located in the Center of Academic Resources of Chulalongkorn University, Bangkok, Thailand.
GDLN Asia Pacific was launched at the GDLN’s East Asia and Pacific regional meeting held in Bangkok from 22 to 24 May 2006. Its vision is to become “the premier network exchanging ideas, experience and know-how across the Asia Pacific Region”. GDLN Asia Pacific is a separate entity to The World Bank. It has endorsed its own Charter and Business Plan and, in accordance with the Charter, a GDLN Asia Pacific Governing Committee has been appointed.
The committee comprises China (2), Australia (1), Thailand (1), The World Bank (1) and finally, a nominee of the Government of Japan (1). The organization is currently hosted by Chulalongkorn University in Bangkok, Thailand, founding member of the GDLN Asia Pacific.
The Governing Committee has determined that the most appropriate legal status for the GDLN AP in Thailand is a “Foundation”. The World Bank is currently engaging a solicitor in Thailand to process all documentation in order to obtain this legal status.
GDLN Asia Pacific is built on the principle of shared resources among partners engaged in a common task, and this is visible in the organizational structures that exist, as the network evolves. Physical space for its headquarters is provided by the host of the GDLN Centre in Thailand – Chulalongkorn University; Technical expertise and some infrastructure is provided by the Tokyo Development Learning Centre (TDLC); Fiduciary services are provided by Australian National University (ANU) Until the GDLN Asia Pacific is established as a legal entity tin Thailand, ANU, has offered to assist the governing committee, by providing a means of managing the inflow and outflow of funds and of reporting on them. This admittedly results in some complexity in contracting arrangements, which need to be worked out on a case by case basis and depends to some extent on the legal requirements of the countries involved.
Poverty reduction strategies By Wold Bank
For the poorest developing countries in the world the bank’s assistance plans are based on poverty reduction strategies; by combining a cross-section of local groups with an extensive analysis of the country’s financial and economical situation the World Bank develops a strategy pertaining uniquely to the country in question. The government then identifies the country’s priorities and targets for the reduction of poverty, and the World Bank aligns its aid efforts correspondingly.
The bank supports certain kinds of poor people's organisations such as the Self-Employed Women's Union and Shack/Slum Dwellers International.
Forty-five countries pledged Us dollar25.1 billion in "aid for the world's poorest countries", aid that goes to the World Bank International Development Association (IDA) which distributes the gifts to eighty poorer countries. While wealthier nations sometimes fund their own aid projects, including those for diseases, and although IDA is the recipient of criticism, Robert B. Zoellick, the president of the World Bank, said when the gifts were announced on December15, 2007, that IDA money "is the core funding that the poorest developing countries rely on
Clean Technology Fund management
The World Bank has been assigned temporary management responsibility of the Clean Technology Fund (CTF), focused on making renewble energy cost-competitive with coal-fired power as quickly as possible, but this may not continue after UN's Copenhagen climate change conference in December, 2009, because of the Bank's continued investment in coal-fired power plant
Country assistance strategies
As a guideline to the World Bank's operations in any particular country, a Country Assistance Strategy is produced, in cooperation with the local government and any interested stakeholders and may rely on analytical work performed by the Bank or other parties.
Knowledge Production
The World Bank has been critiqued for the manner in which it engages in “the production, accumulation, circulation, and functioning” of knowledge. The Bank’s process in the production of knowledge has become integral to the funding and justification of large capital projects . The Bank relies on “a growing network of translocal scientists, technocrats, NGOs, and empowered citizens to help generate data and construct discursive strategies”. Its capacity to produce authoritative knowledge is a response to intense scrutiny of Bank projects resulting from the successes of growing anti-Bank and alternative-development movements.“Development has relied exclusively on one knowledge system, namely, the modern Western one. The dominance of this knowledge system has dictated the marginalization and disqualification of non-Western knowledge systems”. It has been remarked, that in these alternative knowledge systems researchers and activists might find alternative rationales to guide interventionist action away from Western (Bank) produced ways of thinking . Knowledge production has become an asset to the Bank and “it is generated and used in highly strategic ways”to provide justifications for development.
The bank supports certain kinds of poor people's organisations such as the Self-Employed Women's Union and Shack/Slum Dwellers International.
Forty-five countries pledged Us dollar25.1 billion in "aid for the world's poorest countries", aid that goes to the World Bank International Development Association (IDA) which distributes the gifts to eighty poorer countries. While wealthier nations sometimes fund their own aid projects, including those for diseases, and although IDA is the recipient of criticism, Robert B. Zoellick, the president of the World Bank, said when the gifts were announced on December15, 2007, that IDA money "is the core funding that the poorest developing countries rely on
Clean Technology Fund management
The World Bank has been assigned temporary management responsibility of the Clean Technology Fund (CTF), focused on making renewble energy cost-competitive with coal-fired power as quickly as possible, but this may not continue after UN's Copenhagen climate change conference in December, 2009, because of the Bank's continued investment in coal-fired power plant
Country assistance strategies
As a guideline to the World Bank's operations in any particular country, a Country Assistance Strategy is produced, in cooperation with the local government and any interested stakeholders and may rely on analytical work performed by the Bank or other parties.
Knowledge Production
The World Bank has been critiqued for the manner in which it engages in “the production, accumulation, circulation, and functioning” of knowledge. The Bank’s process in the production of knowledge has become integral to the funding and justification of large capital projects . The Bank relies on “a growing network of translocal scientists, technocrats, NGOs, and empowered citizens to help generate data and construct discursive strategies”. Its capacity to produce authoritative knowledge is a response to intense scrutiny of Bank projects resulting from the successes of growing anti-Bank and alternative-development movements.“Development has relied exclusively on one knowledge system, namely, the modern Western one. The dominance of this knowledge system has dictated the marginalization and disqualification of non-Western knowledge systems”. It has been remarked, that in these alternative knowledge systems researchers and activists might find alternative rationales to guide interventionist action away from Western (Bank) produced ways of thinking . Knowledge production has become an asset to the Bank and “it is generated and used in highly strategic ways”to provide justifications for development.
Sunday, October 11, 2009
Comprehensive development framework
According to the World Bank, in virtually all successful assistance projects the country itself was the driving factor. The Bank therefore works to help governments lead and implement their own development strategies and thus take a stronger hand in their own future development. The strategy was initiated by the former president of the bank, James Wolfensohn. Since 1999, it has followed a set of philosophies known as the Comprehensive Development Framework. These philosophies state that:
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be “owned” by the country, based on local stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid programs through stakeholder partnerships
Development performance should be evaluated through measurable results on the ground in order to adjust the strategy to outcomes and a changing world
Poverty reduction strategies
For the poorest developing countries in the world the bank’s assistance plans are based on poverty reduction strategies; by combining a cross-section of local groups with an extensive analysis of the country’s financial and economical situation the World Bank develops a strategy pertaining uniquely to the country in question. The government then identifies the country’s priorities and targets for the reduction of poverty, and the World Bank aligns its aid efforts correspondingly.
The bank supports certain kinds of poor people's organisations such as the Self-Employed Women's Union and Shack/Slum Dwellers International.
Forty-five countries pledged US dollers 25.1 billion in "aid for the world's poorest countries", aid that goes to the World Bank International Development Association (IDA) which distributes the gifts to eighty poorer countries. While wealthier nations sometimes fund their own aid projects, including those for diseases, and although IDA is the recipient of criticism, Robert B. Zoellick, the president of the World Bank, said when the gifts were announced on December 15, 2007, that IDA money "is the core funding that the poorest developing countries rely on".
Clean Technology Fund management
The World Bank has been assigned temporary management responsibility of the Clean Technology Fund (CTF), focused on making renewable energy cost-competitive with coal-fired power as quickly as possible, but this may not continue after UN's Copenhagen climate change conference in December, 2009, because of the Bank's continued investment in coal-fired power plant
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be “owned” by the country, based on local stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid programs through stakeholder partnerships
Development performance should be evaluated through measurable results on the ground in order to adjust the strategy to outcomes and a changing world
Poverty reduction strategies
For the poorest developing countries in the world the bank’s assistance plans are based on poverty reduction strategies; by combining a cross-section of local groups with an extensive analysis of the country’s financial and economical situation the World Bank develops a strategy pertaining uniquely to the country in question. The government then identifies the country’s priorities and targets for the reduction of poverty, and the World Bank aligns its aid efforts correspondingly.
The bank supports certain kinds of poor people's organisations such as the Self-Employed Women's Union and Shack/Slum Dwellers International.
Forty-five countries pledged US dollers 25.1 billion in "aid for the world's poorest countries", aid that goes to the World Bank International Development Association (IDA) which distributes the gifts to eighty poorer countries. While wealthier nations sometimes fund their own aid projects, including those for diseases, and although IDA is the recipient of criticism, Robert B. Zoellick, the president of the World Bank, said when the gifts were announced on December 15, 2007, that IDA money "is the core funding that the poorest developing countries rely on".
Clean Technology Fund management
The World Bank has been assigned temporary management responsibility of the Clean Technology Fund (CTF), focused on making renewable energy cost-competitive with coal-fired power as quickly as possible, but this may not continue after UN's Copenhagen climate change conference in December, 2009, because of the Bank's continued investment in coal-fired power plant
Activities of World Bank
Millennium Development Goals
The World Bank's current focus is on the achievement of the Millennium Development Goals (MDGs), lending primarily to "middle-income countries" at interest rates which reflect a small mark-up over its own (AAA-rated) borrowings from capital markets; while the IDA provides low or no interest loans and grants to low income countries with little or no access to international credit markets. The IBRD is a market-based nonprofit organization, using its high credit rating to make up for the relatively low interest rate on its loans, while the IDA is funded primarily by periodic "replenishments" (grants) voted to the institution by its more affluent member countries.
Five key factors
The Bank’s mission is to aid developing countries and their inhabitants to achieve development and the reduction of poverty, including achievement of the MDGs, by helping countries develop an environment for investment, jobs and sustainable growth, thus promoting economic growth through investment and enabling the poor to share the fruits of economic growth. The World Bank sees the five key factors necessary for economic growth and the creation of an enabling business environment as:
Build capacity: Strengthening governments and educating government officials.
Infrastructure creation: implementation of legal and judicial systems for the encouragement of business, the protection of individual and property rights and the honoring of contracts.
Development of Financial Systems: the establishment of strong systems capable of supporting endeavors from micro credit to the financing of larger corporate ventures.
Combating corruption: Support for countries' efforts at eradicating corruption.
Research, Consultancy and Training: the World Bank provides platform for research on development issues, consultancy and conduct training programs (web based, on line, tele-/ video conferencing and class room based) open for those who are interested from academia, students, government and non-governmental organization (NGO) officers etc.
The Bank obtains funding for its operations primarily through the IBRD’s sale of AAA-rated bonds in the world’s financial markets. The IBRD’s income is generated from its lending activities, with its borrowings leveraging its own paid-in capital, plus the investment of its "float". The IDA obtains the majority of its funds from forty donor countries who replenish the bank’s funds every three years, and from loan repayments, which then become available for re-lending.
Grants
The World Bank also distributes grants for the facilitation of development projects through the encouragement of innovation, cooperation between organizations, and the participation of local stakeholders in projects. IDA grants are predominantly used for:
Debt burden relief in the most indebted and poverty-stricken countries
Improvement of sanitation and water supply
Support of vaccination and immunization programs for the reduction of communicable diseases such as malaria
Combating the HIV/AIDS pandemic
Support of civil society organizations
Creating initiatives for the reduction of greenhouse gases
Other services
The Bank not only provides financial support to its member states, but also analytical and advisory services to facilitate the implementation of the lasting economic and social improvements that are needed in many under-developed countries, as well as educating members with the knowledge necessary to resolve their development problems while promoting.
The World Bank's current focus is on the achievement of the Millennium Development Goals (MDGs), lending primarily to "middle-income countries" at interest rates which reflect a small mark-up over its own (AAA-rated) borrowings from capital markets; while the IDA provides low or no interest loans and grants to low income countries with little or no access to international credit markets. The IBRD is a market-based nonprofit organization, using its high credit rating to make up for the relatively low interest rate on its loans, while the IDA is funded primarily by periodic "replenishments" (grants) voted to the institution by its more affluent member countries.
Five key factors
The Bank’s mission is to aid developing countries and their inhabitants to achieve development and the reduction of poverty, including achievement of the MDGs, by helping countries develop an environment for investment, jobs and sustainable growth, thus promoting economic growth through investment and enabling the poor to share the fruits of economic growth. The World Bank sees the five key factors necessary for economic growth and the creation of an enabling business environment as:
Build capacity: Strengthening governments and educating government officials.
Infrastructure creation: implementation of legal and judicial systems for the encouragement of business, the protection of individual and property rights and the honoring of contracts.
Development of Financial Systems: the establishment of strong systems capable of supporting endeavors from micro credit to the financing of larger corporate ventures.
Combating corruption: Support for countries' efforts at eradicating corruption.
Research, Consultancy and Training: the World Bank provides platform for research on development issues, consultancy and conduct training programs (web based, on line, tele-/ video conferencing and class room based) open for those who are interested from academia, students, government and non-governmental organization (NGO) officers etc.
The Bank obtains funding for its operations primarily through the IBRD’s sale of AAA-rated bonds in the world’s financial markets. The IBRD’s income is generated from its lending activities, with its borrowings leveraging its own paid-in capital, plus the investment of its "float". The IDA obtains the majority of its funds from forty donor countries who replenish the bank’s funds every three years, and from loan repayments, which then become available for re-lending.
Grants
The World Bank also distributes grants for the facilitation of development projects through the encouragement of innovation, cooperation between organizations, and the participation of local stakeholders in projects. IDA grants are predominantly used for:
Debt burden relief in the most indebted and poverty-stricken countries
Improvement of sanitation and water supply
Support of vaccination and immunization programs for the reduction of communicable diseases such as malaria
Combating the HIV/AIDS pandemic
Support of civil society organizations
Creating initiatives for the reduction of greenhouse gases
Other services
The Bank not only provides financial support to its member states, but also analytical and advisory services to facilitate the implementation of the lasting economic and social improvements that are needed in many under-developed countries, as well as educating members with the knowledge necessary to resolve their development problems while promoting.
Saturday, October 10, 2009
World Bank
History
The World Bank is one of two major institutions created as a result of the Bretton Wood Conferrence in 1944. The Internation Monetary Funds, a related but separate institution, is the second. Delegates from a wide variety of countries attended the Bretton Woods Conference, but the most powerful countries in attendance, the United States and United Kingdom, mainly shaped negotiations.
1945–1968
From its conception until 1967 the bank undertook a relatively low level of lending. Fiscal Conservation and careful screening of loan applications was generally accepted practice at the World Bank during this early period. Bank staff attempted to balance the priorities of providing loans for reconstruction and development with the need to instill confidence in the bank as a reliable institution suitable for investment. Bank president John MacCloy selected France to be the first recipient of World Bank aid; two other applications presented at this time from Poland and Chile were rejected. The loan was for $ 987 million, half the amount requested, and came with strict conditions. Staff from the World Bank would monitor the end use of the funds, ensuring that the French government would present a balanced budget, and give priority of debt repayment to the World Bank over other foreign governments. The United States State Department also acted at this time to inform the French Government that Communist elements within the Cabinétte needed to be removed. The French Government complied with this request and removed the Communist elements from the 1947 coalition government. Within hours of this event the loan to France was approved. The Marshall Plan of 1947 caused lending practices at the bank to be altered, as many European countries received aid that competed directly with World Bank loans. Emphasis was shifted to non-European countries and up until 1968 loans were primarily earmarked for projects that would directly enable a borrower country to repay loans (such projects as ports, highway systems, and power plants).
1968–1980
From 1968–1980 the bank focused on poverty alleviation and meeting the basic needs of people in the developing world. During this period the size and number of loans to borrower nations was greatly increased as the spectrum of loan targets expanded from infrastructure into social services and other sectors. These changes can to a large extent be attributed to Robert Macnamara who assumed the Presidency in 1968 after being appointed by US president Lyndon B. Johnson. McNamara imported a technocratic managerial style to the bank that he had employed during periods he had spent serving as United States Secretary of Defence, and President of the Ford Motor Company. McNamara shifted the focus of bank policy towards measures such as building schools and hospitals, improving litracy rates and conducting large-scale agricultural reform. McNamara created a new system of gathering information from potential borrower nations that enabled the bank to process loan applications at a much faster rate. In order to finance the increased loan volume, McNamara tasked bank treasurer Eugene Rotberg to seek out new sources of capital outside of the northern banks that had previously been the primary sources of bank funding. Rotberg utilized the global bond market to greatly increase the amount of capital available to the bank. One consequence of the period of poverty alleviation lending was the rapid rise of third world debt. From 1976–1980 third world debt rose at an average annual rate of 20%
1980–1989
In 1980 A.W Clausen replaced Robert McNamara as World Bank president after being nominated by US President Jimmy Carter. Clausen replaced a large number of bank staffers who had been active during the McNamara era and instituted a new ideological focus in the bank. The replacement of Chief Economist Hollis B.Chenery by Anne Krueger in 1982 marked a notable policy shift at the bank. Krueger was known for her criticism of development funding as well as third world governments as rent-seeking states.
Lending for the purposes of servicing third world debt largely marked the period of 1980–1989. Structural adjustment policies aimed at streamlining the economies of developing nations (largely at the expense of health and social services reductions) were also a large part of World Bank policy during this period. UNICEF reported in the late 1980s that the structural adjustment programs of the World Bank were responsible for the “reduced health, nutritional, and educational levels for tens of millions of children in Asia, Latin America, and Africa”
1989–Present
From 1989 to present, World Bank policy has shifted greatly, largely in response to criticism from a plurality of groups. Environmental groups and NGOs are often now integrated into the lending practices of the bank in order to mitigate the negative results of the previous era that prompted such harsh criticism. Bank projects now explicitly embrace a "green" focus.
The World Bank is one of two major institutions created as a result of the Bretton Wood Conferrence in 1944. The Internation Monetary Funds, a related but separate institution, is the second. Delegates from a wide variety of countries attended the Bretton Woods Conference, but the most powerful countries in attendance, the United States and United Kingdom, mainly shaped negotiations.
1945–1968
From its conception until 1967 the bank undertook a relatively low level of lending. Fiscal Conservation and careful screening of loan applications was generally accepted practice at the World Bank during this early period. Bank staff attempted to balance the priorities of providing loans for reconstruction and development with the need to instill confidence in the bank as a reliable institution suitable for investment. Bank president John MacCloy selected France to be the first recipient of World Bank aid; two other applications presented at this time from Poland and Chile were rejected. The loan was for $ 987 million, half the amount requested, and came with strict conditions. Staff from the World Bank would monitor the end use of the funds, ensuring that the French government would present a balanced budget, and give priority of debt repayment to the World Bank over other foreign governments. The United States State Department also acted at this time to inform the French Government that Communist elements within the Cabinétte needed to be removed. The French Government complied with this request and removed the Communist elements from the 1947 coalition government. Within hours of this event the loan to France was approved. The Marshall Plan of 1947 caused lending practices at the bank to be altered, as many European countries received aid that competed directly with World Bank loans. Emphasis was shifted to non-European countries and up until 1968 loans were primarily earmarked for projects that would directly enable a borrower country to repay loans (such projects as ports, highway systems, and power plants).
1968–1980
From 1968–1980 the bank focused on poverty alleviation and meeting the basic needs of people in the developing world. During this period the size and number of loans to borrower nations was greatly increased as the spectrum of loan targets expanded from infrastructure into social services and other sectors. These changes can to a large extent be attributed to Robert Macnamara who assumed the Presidency in 1968 after being appointed by US president Lyndon B. Johnson. McNamara imported a technocratic managerial style to the bank that he had employed during periods he had spent serving as United States Secretary of Defence, and President of the Ford Motor Company. McNamara shifted the focus of bank policy towards measures such as building schools and hospitals, improving litracy rates and conducting large-scale agricultural reform. McNamara created a new system of gathering information from potential borrower nations that enabled the bank to process loan applications at a much faster rate. In order to finance the increased loan volume, McNamara tasked bank treasurer Eugene Rotberg to seek out new sources of capital outside of the northern banks that had previously been the primary sources of bank funding. Rotberg utilized the global bond market to greatly increase the amount of capital available to the bank. One consequence of the period of poverty alleviation lending was the rapid rise of third world debt. From 1976–1980 third world debt rose at an average annual rate of 20%
1980–1989
In 1980 A.W Clausen replaced Robert McNamara as World Bank president after being nominated by US President Jimmy Carter. Clausen replaced a large number of bank staffers who had been active during the McNamara era and instituted a new ideological focus in the bank. The replacement of Chief Economist Hollis B.Chenery by Anne Krueger in 1982 marked a notable policy shift at the bank. Krueger was known for her criticism of development funding as well as third world governments as rent-seeking states.
Lending for the purposes of servicing third world debt largely marked the period of 1980–1989. Structural adjustment policies aimed at streamlining the economies of developing nations (largely at the expense of health and social services reductions) were also a large part of World Bank policy during this period. UNICEF reported in the late 1980s that the structural adjustment programs of the World Bank were responsible for the “reduced health, nutritional, and educational levels for tens of millions of children in Asia, Latin America, and Africa”
1989–Present
From 1989 to present, World Bank policy has shifted greatly, largely in response to criticism from a plurality of groups. Environmental groups and NGOs are often now integrated into the lending practices of the bank in order to mitigate the negative results of the previous era that prompted such harsh criticism. Bank projects now explicitly embrace a "green" focus.
Friday, October 9, 2009
Bank holiday
A bank holiday is a public holiday in both the United Kingdom and Ireland. There is some automatic right to time off on these days, although the majority of the population not employed in essential services (e.g. utilities, fire, ambulance, police, health-care workers, London Underground) receive them as holidays; those employed in essential services usually receive extra pay for working on these days. Bank holidays are often assumed to be so called because they are days upon which banks are shut, but this is not in fact the case. Some of the assumed bank holidays are days on which the banks are shut but are not, in fact, a bank holiday (e.g. Good Friday and Christmas Day). Legislation does not allow certain payments to be deferred to the working day.
History of bank holidays
Prior to 1834, the Bank of England observed about thirty-three saints' days and religious festivals as holidays, but in 1834, this was reduced to just four: 1 May, 1 November, Good Friday, and Christmas day.
In 1871, the first legislation relating to bank holidays was passed when Sir John Lubbock introduced the Bank Holidays Act 1871 which specified the days in the table set out below. Sir John was an enthusiastic supporter of cricket and was firmly of the belief that bank employees should have the opportunity to participate in and attend matches when they were scheduled. Included in the dates of bank holidays are therefore dates when cricket games were traditionally played between the villages in the region where Sir John was raised. The English people were so thankful that they called the first Bank Holidays 'St. Lubbock's Days' for awhile. Scotland was treated separately because of its separate traditions; for example, New Year is a more important holiday there.
The act does not specify Good Friday and Christmas Day as bank holidays in England,Wales and Ireland because they were already recognised as common law holidays, and because of common observance, they became customary holidays since before records began.
In 1903, the Bank Holiday (Ireland) Act added 17 March saint Patrick's Day as a bank holiday for Ireland only.
From date of the August bank holiday was changed to the end of the month. Curiously, there were a few years (eg 1868) when this holiday fell in September, but this no longer occurs - presumably reflecting a change in the way of defining the relevant day. The Whitsun bank holiday (Whit Monday) was replaced by the Late Spring Bank Holiday - fixed as the last Monday in May - in 1971.
History of bank holidays
Prior to 1834, the Bank of England observed about thirty-three saints' days and religious festivals as holidays, but in 1834, this was reduced to just four: 1 May, 1 November, Good Friday, and Christmas day.
In 1871, the first legislation relating to bank holidays was passed when Sir John Lubbock introduced the Bank Holidays Act 1871 which specified the days in the table set out below. Sir John was an enthusiastic supporter of cricket and was firmly of the belief that bank employees should have the opportunity to participate in and attend matches when they were scheduled. Included in the dates of bank holidays are therefore dates when cricket games were traditionally played between the villages in the region where Sir John was raised. The English people were so thankful that they called the first Bank Holidays 'St. Lubbock's Days' for awhile. Scotland was treated separately because of its separate traditions; for example, New Year is a more important holiday there.
The act does not specify Good Friday and Christmas Day as bank holidays in England,Wales and Ireland because they were already recognised as common law holidays, and because of common observance, they became customary holidays since before records began.
In 1903, the Bank Holiday (Ireland) Act added 17 March saint Patrick's Day as a bank holiday for Ireland only.
From date of the August bank holiday was changed to the end of the month. Curiously, there were a few years (eg 1868) when this holiday fell in September, but this no longer occurs - presumably reflecting a change in the way of defining the relevant day. The Whitsun bank holiday (Whit Monday) was replaced by the Late Spring Bank Holiday - fixed as the last Monday in May - in 1971.
Mobile Banking in the world
Mobile banking has come in handy in many parts of the world with little or no Infrastructure development, especially in remote and rural areas. This part of the mobile commerce is also very popular in countries where most of their population is unbanked. In most of this places banks can only be found in big cities and customers have to travel hundreds of miles to the nearest bank.Countries like Sudan, Ghana and South Africa received this new commerce very well.In Latin America countries like Uruguay, Paraguay, Argentina, Brazil, Venezuela, Colombia, Guatemala and recently Mexico started with a huge success.In Colombia was released with Redeban.In Iran banks like Parsian, Tejarat, Mellat, Saderat, Sepah, edbi and bankmelli offer this service. Guatemala have the support of Banco industrial.Mexico released the mobile commerce with Omnilife,Bancomer and a private company(MPower Ventures). Kenya's Safaricom (Part of the Vodafone Group) has had the very popular M-Pesa Service - mainly used to transfer limited amounts of money, but has been increasingly used to pay utility bills. Zain in 2009 launched their own mobile money transfer business known as ZAP in Kenya and other African countries.
Mobile content
From Wikipedia, the free encyclopedia
Jump to: novigation, search
Mobile content is any type of media which is viewed or used on mobile phones, like ringtones, graphics, discount offers, games, and movies. As mobile phone use has grown since the mid 1990s, the significance of the devices in everyday life has grown accordingly. Owners of mobile phones can now use their devices to make calendar appointments, send and receive text messages (SMS), listen to music, watch videos, shoot videos, redeem coupons for purchases, view Microsoft Word documents, and so forth. The use of mobile content has grown accordingly.
Modern mobile phones can take photographs with a few million pixels. The Nokia n93 can create videos of comparable resolution to a DVD, storing up to 90 minutes on the phone memory.
Mobile content can also refer to text or multimedia hosted on websites, which may either be standard internet pages, or else specific mobile pages.
Mobile content via SMS is still the main technology used to send mobile consumers messages, especially simple content such as ringtones and wallpapers. Because SMS is the main messaging technology used by young people, it is still the most effective way of reaching this target market. SMS is also ubiquitous, reaching a wider audience than any other technology available in the mobile space (MMS, bluetooth, mobile e-mail or WAP). More important than anything else, SMS is extremely easy to use, what makes adoption increase day by day.
Although many say that SMS is an old technology that sooner or later will be replaced by fancier like MMS or WAP, the fact is that SMS reinvents itself continuously. One example is the introduction of applications where mobile tickets are sent to consumers via SMS, which contains a WAP-Push that contains a link where a barcode is placed. This clearly substitutes MMS, which has a limited reach and still suffers from interoperability problems.
It is important to keep enhancing the consumer confidence in using SMS for mobile content applications. This means, if a consumer has ordered a new wallpaper or ringtone, this has to work properly, in a speedy and reliable way. Therefore it is important to choose the right SMS gateway provider in order to ensure quality-of-service along the whole path of the content SMS until reaching the consumer's mobile.
Modern phones come with Bluetooth. This allows video to be sent from phone to phone over Bluetooth, which has the advantages that there is no data charge.
Mobile content
From Wikipedia, the free encyclopedia
Jump to: novigation, search
Mobile content is any type of media which is viewed or used on mobile phones, like ringtones, graphics, discount offers, games, and movies. As mobile phone use has grown since the mid 1990s, the significance of the devices in everyday life has grown accordingly. Owners of mobile phones can now use their devices to make calendar appointments, send and receive text messages (SMS), listen to music, watch videos, shoot videos, redeem coupons for purchases, view Microsoft Word documents, and so forth. The use of mobile content has grown accordingly.
Modern mobile phones can take photographs with a few million pixels. The Nokia n93 can create videos of comparable resolution to a DVD, storing up to 90 minutes on the phone memory.
Mobile content can also refer to text or multimedia hosted on websites, which may either be standard internet pages, or else specific mobile pages.
Mobile content via SMS is still the main technology used to send mobile consumers messages, especially simple content such as ringtones and wallpapers. Because SMS is the main messaging technology used by young people, it is still the most effective way of reaching this target market. SMS is also ubiquitous, reaching a wider audience than any other technology available in the mobile space (MMS, bluetooth, mobile e-mail or WAP). More important than anything else, SMS is extremely easy to use, what makes adoption increase day by day.
Although many say that SMS is an old technology that sooner or later will be replaced by fancier like MMS or WAP, the fact is that SMS reinvents itself continuously. One example is the introduction of applications where mobile tickets are sent to consumers via SMS, which contains a WAP-Push that contains a link where a barcode is placed. This clearly substitutes MMS, which has a limited reach and still suffers from interoperability problems.
It is important to keep enhancing the consumer confidence in using SMS for mobile content applications. This means, if a consumer has ordered a new wallpaper or ringtone, this has to work properly, in a speedy and reliable way. Therefore it is important to choose the right SMS gateway provider in order to ensure quality-of-service along the whole path of the content SMS until reaching the consumer's mobile.
Modern phones come with Bluetooth. This allows video to be sent from phone to phone over Bluetooth, which has the advantages that there is no data charge.
Thursday, October 8, 2009
Challenges for a Mobile Banking Solution
Key challenges in developing a sophisticated mobile banking application are :
Handset operability
There are a large number of different mobile phone devices and it is a big challenge for banks to offer mobile banking solution on any type of device. Some of these devices support J2ME and others support WAP browser or only SMS.
Initial interoperability issues however have been localized, with countries like India using portals like R-World to enable the limitations of low end java based phones, while focus on areas such as South Africa have defaulted to the USSD as a basis of communication achievable with any phone.
The desire for interoperability is largely dependent on the banks themselves, where installed applications(Java based or native) provide better security, are easier to use and allow development of more complex capabilities similar to those of internet banking while SMS can provide the basics but becomes difficult to operate with more complex transactions.
There is a myth that there is a challenge of interoperability between mobile banking applications due to perceived lack of common technology standards for mobile banking. In practice it is too early in the service lifecycle for interoperability to be addressed within an individual country, as very few countries have more than one mobile banking service provider. In practice, banking interfaces are well defined and money movements between banks follow the IS0-8583 standard. As mobile banking matures, money movements between service providers will naturally adopt the same standards as in the banking world.
Security
Security of financial transactions, being executed from some remote location and transmission of financial information over the air, are the most complicated challenges that need to be addressed jointly by mobile application developers, wireless network service providers and the banks' IT departments.
The following aspects need to be addressed to offer a secure infrastructure for financial transaction over wireless network :
1. Physical part of the hand-held device. If the bank is offering smart-card based security, the physical security of the device is more important.
2. Security of any thick-client application running on the device. In case the device is stolen, the hacker should require at least an ID/Password to access the application.
3. Authentication of the device with service provider before initiating a transaction. This would ensure that unauthorized devices are not connected to perform financial transactions.
4. User ID / Password authentication of bank’s customer.
5. Encryption of the data being transmitted over the air.
6. Encryption of the data that will be stored in device for later / off-line analysis by the customer.
Scalability & Reliability
Another challenge for the CIOs and CTOs of the banks is to scale-up the mobile banking infrastructure to handle exponential growth of the customer base. With mobile banking, the customer may be sitting in any part of the world (true anytime, anywhere banking) and hence banks need to ensure that the systems are up and running in a true 24 x 7 fashion. As customers will find mobile banking more and more useful, their expectations from the solution will increase. Banks unable to meet the performance and reliability expectations may lose customer confidence. There are systems such as Mobile Trasaction Platform which allow quick and secure mobile enabling of various banking services. Recently in India there has been a phenomenal growth in the use of Mobile Banking applications, with leading banks adopting Mobile Transaction Platform and the Central Bank publishing guidelines for mobile banking operations.
Application distribution
Due to the nature of the connectivity between bank and its customers, it would be impractical to expect customers to regularly visit banks or connect to a web site for regular upgrade of their mobile banking application. It will be expected that the mobile application itself check the upgrades and updates and download necessary patches (so called "Over The Air" updates). However, there could be many issues to implement this approach such as upgrade / synchronization of other dependent components.
Personalization
It would be expected from the mobile application to support personalization such as :
1. Preferred Language
2. Date / Time format
3. Amount format
4. Default transactions
5. Standard Beneficiary list
6. Alerts
Handset operability
There are a large number of different mobile phone devices and it is a big challenge for banks to offer mobile banking solution on any type of device. Some of these devices support J2ME and others support WAP browser or only SMS.
Initial interoperability issues however have been localized, with countries like India using portals like R-World to enable the limitations of low end java based phones, while focus on areas such as South Africa have defaulted to the USSD as a basis of communication achievable with any phone.
The desire for interoperability is largely dependent on the banks themselves, where installed applications(Java based or native) provide better security, are easier to use and allow development of more complex capabilities similar to those of internet banking while SMS can provide the basics but becomes difficult to operate with more complex transactions.
There is a myth that there is a challenge of interoperability between mobile banking applications due to perceived lack of common technology standards for mobile banking. In practice it is too early in the service lifecycle for interoperability to be addressed within an individual country, as very few countries have more than one mobile banking service provider. In practice, banking interfaces are well defined and money movements between banks follow the IS0-8583 standard. As mobile banking matures, money movements between service providers will naturally adopt the same standards as in the banking world.
Security
Security of financial transactions, being executed from some remote location and transmission of financial information over the air, are the most complicated challenges that need to be addressed jointly by mobile application developers, wireless network service providers and the banks' IT departments.
The following aspects need to be addressed to offer a secure infrastructure for financial transaction over wireless network :
1. Physical part of the hand-held device. If the bank is offering smart-card based security, the physical security of the device is more important.
2. Security of any thick-client application running on the device. In case the device is stolen, the hacker should require at least an ID/Password to access the application.
3. Authentication of the device with service provider before initiating a transaction. This would ensure that unauthorized devices are not connected to perform financial transactions.
4. User ID / Password authentication of bank’s customer.
5. Encryption of the data being transmitted over the air.
6. Encryption of the data that will be stored in device for later / off-line analysis by the customer.
Scalability & Reliability
Another challenge for the CIOs and CTOs of the banks is to scale-up the mobile banking infrastructure to handle exponential growth of the customer base. With mobile banking, the customer may be sitting in any part of the world (true anytime, anywhere banking) and hence banks need to ensure that the systems are up and running in a true 24 x 7 fashion. As customers will find mobile banking more and more useful, their expectations from the solution will increase. Banks unable to meet the performance and reliability expectations may lose customer confidence. There are systems such as Mobile Trasaction Platform which allow quick and secure mobile enabling of various banking services. Recently in India there has been a phenomenal growth in the use of Mobile Banking applications, with leading banks adopting Mobile Transaction Platform and the Central Bank publishing guidelines for mobile banking operations.
Application distribution
Due to the nature of the connectivity between bank and its customers, it would be impractical to expect customers to regularly visit banks or connect to a web site for regular upgrade of their mobile banking application. It will be expected that the mobile application itself check the upgrades and updates and download necessary patches (so called "Over The Air" updates). However, there could be many issues to implement this approach such as upgrade / synchronization of other dependent components.
Personalization
It would be expected from the mobile application to support personalization such as :
1. Preferred Language
2. Date / Time format
3. Amount format
4. Default transactions
5. Standard Beneficiary list
6. Alerts
Mobile Banking Services
Mobile banking can offer services such as the following:
Account Information
1. Mini-statements and checking of account history
2. Alerts on account activity or passing of set thresholds
3. Monitoring of term deposits
4. Access to loan statements
5. Access to card statements
6. Mutual Funds / equity statements
7. Insurance policy management
8. Pension plan management
9. Status on cheque, stop payment on cheque
10. Ordering check books
11. Balance checking in the account
12. Recent transactions
13. Due date of payment (functionality for stop, change and deleting of payments)
14. PIN provision, Change of PIN and reminder over the Internet
15. Blocking of (lost, stolen) cards
Payments, Deposits, Withdrawals, and Transfers
Account Information
1. Mini-statements and checking of account history
2. Alerts on account activity or passing of set thresholds
3. Monitoring of term deposits
4. Access to loan statements
5. Access to card statements
6. Mutual Funds / equity statements
7. Insurance policy management
8. Pension plan management
9. Status on cheque, stop payment on cheque
10. Ordering check books
11. Balance checking in the account
12. Recent transactions
13. Due date of payment (functionality for stop, change and deleting of payments)
14. PIN provision, Change of PIN and reminder over the Internet
15. Blocking of (lost, stolen) cards
Payments, Deposits, Withdrawals, and Transfers
1. Domestic and international fund transfers
2. Micro-payment handling
3. Mobile recharging
4. Commercial payment processing
5. Bill payment processing
6. Peer to Peer payments
7. Withdrawal at banking agent
8. Deposit at banking agent
Especially for clients in remote locations, it will be important to help them deposit and withdraw funds at banking agents, i.e., retail and postal outlets that turn cash into electronic funds and vice versa. The feasibility of such banking agents depends on local regulation which enables retail outlets to take deposits or not.
A specific sequence of SMS messages will enable the system to verify if the client has sufficient funds in his or her wallet and authorize a deposit or withdrawal transaction at the agent. When depositing money, the merchant receives cash and the system credits the client's bank account or mobile wallet. In the same way the client can also withdraw money at the merchant: through exchanging sms to provide authorization, the merchant hands the client cash and debits the merchant's account.
Investments:
1. Portfolio management services
2. Real-time stock quotes
3. Personalized alerts and notifications on security prices
Support
1. Status of requests for credit, including mortgage approval, and insurance coverage
2. Check (cheque) book and card requests
3. Exchange of data messages and email, including complaint submission and tracking
4. ATM Location
Content Services
1. General information such as weather updates, news
2. Loyalty-related offers
3. Location Based-Services
Based on a survey conducted by Forrester, mobile banking will be attractive mainly to the younger, more "tech-savvy" customer segment. A third of mobile phone users say that they may consider performing some kind of financial transaction through their mobile phone. But most of the users are interested in performing basic transactions such as querying for account balance and making bill payment.
Mobile banking business models
A wide spectrum of Mobile/branchless banking models is evolving. However, no matter what business model, if mobile banking is being used to attract low-income populations in often rural locations, the business model will depend on banking agent, i.e., retail or postal outlets that process financial transactions on behalf telcos or banks. The banking agent is an important part of the mobile banking business model since customer care, service quality, and cash management will depend on them. Many telcos will work through their local airtime resellers. However, banks in Colombia, Brazil, Peru, and other markets use pharmacies, bakeries, etc.
These models differ primarily on the question that who will establish the relationship (account opening, deposit taking, lending etc.) to the end customer, the Bank or the Non-Bank/Telecommunication Company (Telco). Another difference lies in the nature of agency agreement between bank and the Non-Bank. Models of branchless banking can be classified into three broad categories - Bank Focused, Bank-Led and Nonbank-Led.
Bank-focused model
The bank-focused model emerges when a traditional bank uses non-traditional low-cost delivery channels to provide banking services to its existing customers. Examples range from use of Automatic Teller Machines (ATMs) to internet banking or mobile phone banking to provide certain limited banking services to banks’ customers. This model is additive in nature and may be seen as a modest extension of conventional branch-based banking.
Bank-led model
The bank-led model offers a distinct alternative to conventional branch-based banking in that customer conducts financial transactions at a whole range of retail agents (or through mobile phone) instead of at bank branches or through bank employees. This model promises the potential to substantially increase the financial services outreach by using a different delivery channel (retailers/ mobile phones), a different trade partner (telco / chain store) having experience and target market distinct from traditional banks, and may be significantly cheaper than the bank-based alternatives. The bank-led model may be implemented by either using correspondent arrangements or by creating a JV between Bank and Telco/non-bank. In this model customer account relationship rests with the bank
Non-bank-led model
The non-bank-led model is where a bank does not come into the picture (except possibly as a safe-keeper of surplus funds) and the non-bank (e.g. telco) performs all the functions.
These models differ primarily on the question that who will establish the relationship (account opening, deposit taking, lending etc.) to the end customer, the Bank or the Non-Bank/Telecommunication Company (Telco). Another difference lies in the nature of agency agreement between bank and the Non-Bank. Models of branchless banking can be classified into three broad categories - Bank Focused, Bank-Led and Nonbank-Led.
Bank-focused model
The bank-focused model emerges when a traditional bank uses non-traditional low-cost delivery channels to provide banking services to its existing customers. Examples range from use of Automatic Teller Machines (ATMs) to internet banking or mobile phone banking to provide certain limited banking services to banks’ customers. This model is additive in nature and may be seen as a modest extension of conventional branch-based banking.
Bank-led model
The bank-led model offers a distinct alternative to conventional branch-based banking in that customer conducts financial transactions at a whole range of retail agents (or through mobile phone) instead of at bank branches or through bank employees. This model promises the potential to substantially increase the financial services outreach by using a different delivery channel (retailers/ mobile phones), a different trade partner (telco / chain store) having experience and target market distinct from traditional banks, and may be significantly cheaper than the bank-based alternatives. The bank-led model may be implemented by either using correspondent arrangements or by creating a JV between Bank and Telco/non-bank. In this model customer account relationship rests with the bank
Non-bank-led model
The non-bank-led model is where a bank does not come into the picture (except possibly as a safe-keeper of surplus funds) and the non-bank (e.g. telco) performs all the functions.
Mobile banking
Mobile banking (also known as M-Banking, mbanking, SMS Banking etc.) is a term used for performing balance checks, account transactions, payments etc. via a mobile device such as a mobile banking. Mobile banking today (2007) is most often performed via SMS or the Mobile Internet but can also use special programs called clients downloaded to the mobile device
A mobile banking conceptual model
In one academic model, mobile banking is defined as:
"Mobile Banking refers to provision and availment of banking- and financial services with the help of mobile telecommunication devices.The scope of offered services may include facilities to conduct bank and stock market transactions, to administer accounts and to access customised information."
According to this model Mobile Banking can be said to consist of three inter-related concepts:
Mobile Accounting
Mobile Brokerage
Mobile Financial Information Services
Most services in the categories designated Accounting and Brokerage are transaction-based. The non-transaction-based services of an informational nature are however essential for conducting transactions - for instance, balance inquiries might be needed before committing a money remittance. The accounting and brokerage services are therefore offered invariably in combination with information services. Information services, on the other hand, may be offered as an independent module.
Trends in mobile banking
The advent of the Internet has revolutionized the way the financial services industry conducts business, empowering organizations with new business models and new ways to offer 24x7 accessibility to their customers.
The ability to offer financial transactions online has also created new players in the financial services industry, such as online banks, online brokers and wealth managers who offer personalized services, although such players still account for a tiny percentage of the industry.
Over the last few years, the mobile and wireless market has been one of the fastest growing markets in the world and it is still growing at a rapid pace. According to the GSM Association and Ovum, the number of mobile subscribers exceeded 2 billion in September 2005, and now exceeds 2.5 billion (of which more than 2 billion are GSM).
According to a study by financial consultancy Celent, 35% of online banking households will be using mobile banking by 2010, up from less than 1% today. Upwards of 70% of bank center call volume is projected to come from mobile phones. Mobile banking will eventually allow users to make payments at the physical point of sale. "Mobile Contactless payment” will make up 10% of the contactless market by 2010.
Many believe that mobile users have just started to fully utilize the data capabilities in their mobile phone. In Asian countries like India, China, Bangladesh, Indonesia and Philippines, where mobile infrastructure is comparatively better than the fixed-line infrastructure, and in European countries, where mobile phone penetration is very high (at least 80% of consumers use a mobile phone), mobile banking is likely to appeal even more.
This opens up huge markets for financial institutions interested in offering value added services. With mobile technology, banks can offer a wide range of services to their customers such as doing funds transfer while travelling, receiving online updates of stock price or even performing stock trading while being stuck in traffic. According to the German mobile operator Mobilcom, mobile banking will be the "killer application" for the next generation of mobile technology.
Mobile devices, especially smartphones, are the most promising way to reach the masses and to create “stickiness” among current customers, due to their ability to provide services anytime, anywhere, high rate of penetration and potential to grow. According to Gartner, shipment of smartphones is growing fast, and should top 20 million units (of over 800 million sold) in 2006 alone.
In the last 4 years, banks across the globe have invested billions of dollars to build sophisticated internet banking capabilities. As the trend is shifting to mobile banking, there is a challenge for CIOs and CTOs of these banks to decide on how to leverage their investment in internet banking and offer mobile banking, in the shortest possible time.[Citation needed]
The proliferation of the 3G (third generation of wireless) and widespread implementation expected for 2003–2007 will generate the development of more sophisticated services such as multimedia and links to m-commerce services.
A mobile banking conceptual model
In one academic model, mobile banking is defined as:
"Mobile Banking refers to provision and availment of banking- and financial services with the help of mobile telecommunication devices.The scope of offered services may include facilities to conduct bank and stock market transactions, to administer accounts and to access customised information."
According to this model Mobile Banking can be said to consist of three inter-related concepts:
Mobile Accounting
Mobile Brokerage
Mobile Financial Information Services
Most services in the categories designated Accounting and Brokerage are transaction-based. The non-transaction-based services of an informational nature are however essential for conducting transactions - for instance, balance inquiries might be needed before committing a money remittance. The accounting and brokerage services are therefore offered invariably in combination with information services. Information services, on the other hand, may be offered as an independent module.
Trends in mobile banking
The advent of the Internet has revolutionized the way the financial services industry conducts business, empowering organizations with new business models and new ways to offer 24x7 accessibility to their customers.
The ability to offer financial transactions online has also created new players in the financial services industry, such as online banks, online brokers and wealth managers who offer personalized services, although such players still account for a tiny percentage of the industry.
Over the last few years, the mobile and wireless market has been one of the fastest growing markets in the world and it is still growing at a rapid pace. According to the GSM Association and Ovum, the number of mobile subscribers exceeded 2 billion in September 2005, and now exceeds 2.5 billion (of which more than 2 billion are GSM).
According to a study by financial consultancy Celent, 35% of online banking households will be using mobile banking by 2010, up from less than 1% today. Upwards of 70% of bank center call volume is projected to come from mobile phones. Mobile banking will eventually allow users to make payments at the physical point of sale. "Mobile Contactless payment” will make up 10% of the contactless market by 2010.
Many believe that mobile users have just started to fully utilize the data capabilities in their mobile phone. In Asian countries like India, China, Bangladesh, Indonesia and Philippines, where mobile infrastructure is comparatively better than the fixed-line infrastructure, and in European countries, where mobile phone penetration is very high (at least 80% of consumers use a mobile phone), mobile banking is likely to appeal even more.
This opens up huge markets for financial institutions interested in offering value added services. With mobile technology, banks can offer a wide range of services to their customers such as doing funds transfer while travelling, receiving online updates of stock price or even performing stock trading while being stuck in traffic. According to the German mobile operator Mobilcom, mobile banking will be the "killer application" for the next generation of mobile technology.
Mobile devices, especially smartphones, are the most promising way to reach the masses and to create “stickiness” among current customers, due to their ability to provide services anytime, anywhere, high rate of penetration and potential to grow. According to Gartner, shipment of smartphones is growing fast, and should top 20 million units (of over 800 million sold) in 2006 alone.
In the last 4 years, banks across the globe have invested billions of dollars to build sophisticated internet banking capabilities. As the trend is shifting to mobile banking, there is a challenge for CIOs and CTOs of these banks to decide on how to leverage their investment in internet banking and offer mobile banking, in the shortest possible time.[Citation needed]
The proliferation of the 3G (third generation of wireless) and widespread implementation expected for 2003–2007 will generate the development of more sophisticated services such as multimedia and links to m-commerce services.
Wednesday, October 7, 2009
Online banking
Online banking (or Internet banking) allows customers to conduct financial transactions on a secure website operated by their retail or virtual bacnk, credit union or building society
Features
Online banking solutions have many features and capabilities in common, but traditionally also have some that are application specific.
The common features fall broadly into several categories
Transactional (e.g., performing a financial transaction such as an account to account transfer, paying a bill, wire transfer... and applications... apply for a loan, new account, etc.)
Electronic bill presntment and payment - EBPP
Funds transfer between a customer's own checking and saving accounts, or to another customer's account
Investment purchase or sale
Loan applications and transactions, such as repayments
Non-transactional (e.g., online statements, check links, cobrowsing, chat)
Bank Statement
Financial Institution Administration -
Support of multiple users having varying levels of authority
Transaction approval process
Wire transfer
Features commonly unique to Internet banking include
Personal financial management support, such as importing data into personal accounting software. Some online banking platforms support account aggregation to allow the customers to monitor all of their accounts in one place whether they are with their main bank or with other institutions
Security
Protection through single password authentication, as is the case in most secure Internet shopping sites, is not considered secure enough for personal online banking applications in some countries. Basically there exist two different security methods for online banking.
The PIN/TAN system where the PIN represents a password, used for the login and TANs representing one-time passwords to authenticate transactions. TANs can be distributed in different ways, the most popular one is to send a list of TANs to the online banking user by postal letter. The most secure way of using TANs is to generate them by need using a security token. These token generated TANs depend on the time and a unique secret, stored in the security token (this is called two-factor authentication or 2FA). Usually online banking with PIN/TAN is done via a web browser using SSL secured connections, so that there is no additional encryption needed.
Signature based online banking where all transactions are signed and encrypted digitally. The Keys for the signature generation and encryption can be stored on smartcards or any memory medium, depending on the concrete implementation.
Attacks
Most of the attacks on online banking used today are based on deceiving the user to steal login data and valid TANs. Two well known examples for those attacks are phishing and pharming. Cross site scripting and keylogger/Trojan horses can also be used to steal login information.
A method to attack signature based online banking methods is to manipulate the used software in a way, that correct transactions are shown on the screen and faked transactions are signed in the background.
A recent FDIC Technology Incident Report, compiled from suspicious activity reports banks file quarterly, lists 536 cases of computer intrusion, with an average loss per incident of $30,000. That adds up to a nearly $16-million loss in the second quarter of 2007. Computer intrusions increased by 150 percent between the first quarter of 2007 and the second. In 80 percent of the cases, the source of the intrusion is unknown but it occurred during online banking, the report states.
The most recent kind of attack is the so-called Man in browser attack, where a Trojan horses permits a remote attacker to modify the destination account number and also the amount
Features
Online banking solutions have many features and capabilities in common, but traditionally also have some that are application specific.
The common features fall broadly into several categories
Transactional (e.g., performing a financial transaction such as an account to account transfer, paying a bill, wire transfer... and applications... apply for a loan, new account, etc.)
Electronic bill presntment and payment - EBPP
Funds transfer between a customer's own checking and saving accounts, or to another customer's account
Investment purchase or sale
Loan applications and transactions, such as repayments
Non-transactional (e.g., online statements, check links, cobrowsing, chat)
Bank Statement
Financial Institution Administration -
Support of multiple users having varying levels of authority
Transaction approval process
Wire transfer
Features commonly unique to Internet banking include
Personal financial management support, such as importing data into personal accounting software. Some online banking platforms support account aggregation to allow the customers to monitor all of their accounts in one place whether they are with their main bank or with other institutions
Security
Protection through single password authentication, as is the case in most secure Internet shopping sites, is not considered secure enough for personal online banking applications in some countries. Basically there exist two different security methods for online banking.
The PIN/TAN system where the PIN represents a password, used for the login and TANs representing one-time passwords to authenticate transactions. TANs can be distributed in different ways, the most popular one is to send a list of TANs to the online banking user by postal letter. The most secure way of using TANs is to generate them by need using a security token. These token generated TANs depend on the time and a unique secret, stored in the security token (this is called two-factor authentication or 2FA). Usually online banking with PIN/TAN is done via a web browser using SSL secured connections, so that there is no additional encryption needed.
Signature based online banking where all transactions are signed and encrypted digitally. The Keys for the signature generation and encryption can be stored on smartcards or any memory medium, depending on the concrete implementation.
Attacks
Most of the attacks on online banking used today are based on deceiving the user to steal login data and valid TANs. Two well known examples for those attacks are phishing and pharming. Cross site scripting and keylogger/Trojan horses can also be used to steal login information.
A method to attack signature based online banking methods is to manipulate the used software in a way, that correct transactions are shown on the screen and faked transactions are signed in the background.
A recent FDIC Technology Incident Report, compiled from suspicious activity reports banks file quarterly, lists 536 cases of computer intrusion, with an average loss per incident of $30,000. That adds up to a nearly $16-million loss in the second quarter of 2007. Computer intrusions increased by 150 percent between the first quarter of 2007 and the second. In 80 percent of the cases, the source of the intrusion is unknown but it occurred during online banking, the report states.
The most recent kind of attack is the so-called Man in browser attack, where a Trojan horses permits a remote attacker to modify the destination account number and also the amount
General principles of bank regulation
Banking regulations can vary widely across nations and jurisdictions. This section of the article describes general principles of bank regulation throughout the world
Minimum requirements
Requirements are imposed on banks in order to promote the objectives of the regulator. The most important minimum requirement in banking regulation is maintaining minimum capital ratios
Supervisory review
Banks are required to be issued with a bank license by the regulator in order to carry on business as a bank, and the regulator supervises licenced banks for compliance with the requirements and responds to breaches of the requirements through obtaining undertakings, giving directions, imposing penalties or revoking the bank's licence.
Market discipline
The regulator requires banks to publicly disclose financial and other information, and depositors and other creditors are able to use this information to assess the level of risk and to make investment decisions. As a result of this, the bank is subject to market discipline and the regulator can also use market pricing information as an indicator of the bank's financial health
Instruments and requirements of bank regulation
Captial requirement
The capital requirement sets a framework on how banks must handle their capital in relation to their assets. Internationally, the Bank for internation Settlement' Basel Commitee on Banking Supervision influences each country's capital requirements. In 1988, the Committee decided to introduce a capital measurement system commonly referred to as the Basel Capital Accords. The latest capital adequacy framework is commonly known as Basel II. This updated framework is intended to be more risk sensitive than the original one, but is also a lot more complex
Reserve requirement
The reserve requirement sets the minimum reserves each bank must hold to demand deposits and banknotes. This type of regulation has lost the role it once had, as the emphasis has moved toward capital adequacy, and in many countries there is no minimum reserve ratio. The purpose of minimum reserve ratios is liquidity rather than safety. An example of a country with a contemporary minimum reserve ratio is Hong Kong, where banks are required to maintain 25% of their liabilities that are due on demand or within 1 month as qualifying liquefiable assets.
Reserve requirements have also been used in the past to control the stock of banknotes and/or bank deposits. Required reserves have at times been gold coin, central bank banknotes or deposits, and foreign currency.
Minimum requirements
Requirements are imposed on banks in order to promote the objectives of the regulator. The most important minimum requirement in banking regulation is maintaining minimum capital ratios
Supervisory review
Banks are required to be issued with a bank license by the regulator in order to carry on business as a bank, and the regulator supervises licenced banks for compliance with the requirements and responds to breaches of the requirements through obtaining undertakings, giving directions, imposing penalties or revoking the bank's licence.
Market discipline
The regulator requires banks to publicly disclose financial and other information, and depositors and other creditors are able to use this information to assess the level of risk and to make investment decisions. As a result of this, the bank is subject to market discipline and the regulator can also use market pricing information as an indicator of the bank's financial health
Instruments and requirements of bank regulation
Captial requirement
The capital requirement sets a framework on how banks must handle their capital in relation to their assets. Internationally, the Bank for internation Settlement' Basel Commitee on Banking Supervision influences each country's capital requirements. In 1988, the Committee decided to introduce a capital measurement system commonly referred to as the Basel Capital Accords. The latest capital adequacy framework is commonly known as Basel II. This updated framework is intended to be more risk sensitive than the original one, but is also a lot more complex
Reserve requirement
The reserve requirement sets the minimum reserves each bank must hold to demand deposits and banknotes. This type of regulation has lost the role it once had, as the emphasis has moved toward capital adequacy, and in many countries there is no minimum reserve ratio. The purpose of minimum reserve ratios is liquidity rather than safety. An example of a country with a contemporary minimum reserve ratio is Hong Kong, where banks are required to maintain 25% of their liabilities that are due on demand or within 1 month as qualifying liquefiable assets.
Reserve requirements have also been used in the past to control the stock of banknotes and/or bank deposits. Required reserves have at times been gold coin, central bank banknotes or deposits, and foreign currency.
Brokered deposits
One source of deposits for banks is brokers who deposit large sums of money on the behalf of investors. This money will generally go to the banks which offer the most favorable terms, often better than those offered local depositors. It is possible for a bank to be engaged in business with no local deposits at all, all funds being brokered deposits. Accepting a significant quantity of such deposits, or "hot money" as it is sometimes called, puts a bank in a difficult and sometimes risky position, as the funds must be lend or invested in a way that yields a return sufficient to pay the high interest being paid on the brokered deposits. This may result in risky decisions and even in eventual failure of the bank. Banks which failed during 2008 and 2009 in the United States during the global financial crisis had, on average, four times more brokered deposits as a percent of their deposits than the average bank. Such deposits, combined with risky real estate investments, factored into the Saving and loan crisis of the 1980s. Regulation of brokered deposits is opposed by banks on the grounds that the practice can a source of external funding to growing communities with insufficient local deposits.
Profitability
A bank generates a profit from the differential between the level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities. This difference is referred to as the spread between the cost of funds and the loan interest rate. Historically, profitability from lending activities has been cyclical and dependent on the needs and strengths of loan customers. In recent history, investors have demanded a more stable revenue stream and banks have therefore placed more emphasis on transaction fees, primarily loan fees but also including service charges on an array of deposit activities and ancillary services (international banking, foreign exchange, insurance, investments, wire transfer, etc.). Lending activities, however, still provide the bulk of a commercial bank's income.
In the past 20 years American banks have taken many measures to ensure that they remain profitable while responding to increasingly changing market conditions. First, this includes the Gramm Leach Bliley Act, which allows banks again to merge with investment and insurance houses. Merging banking, investment, and insurance functions allows traditional banks to respond to increasing consumer demands for "one-stop shopping" by enabling cross-selling of products (which, the banks hope, will also increase profitability). Second, they have expanded the use of risk-based pricing from business lending to consumer lending, which means charging higher interest rates to those customers that are considered to be a higher credit risk and thus increased chance of default on loans. This helps to offset the losses from bad loans, lowers the price of loans to those who have better credit histories, and offers credit products to high risk customers who would otherwise been denied credit. Third, they have sought to increase the methods of payment processing available to the general public and business clients. These products include debit cards, prepaid cards, smart cards, and credit cards. They make it easier for consumers to conveniently make transactions and smooth their consumption over time (in some countries with underdeveloped financial systems, it is still common to deal strictly in cash, including carrying suitcases filled with cash to purchase a home). However, with convenience of easy credit, there is also increased risk that consumers will mismanage their financial resources and accumulate excessive debt. Banks make money from card products through interest payments and fees charged to consumers and transaction fees to companies that accept the cards. Helps in making profit and economic development as a whole
Profitability
A bank generates a profit from the differential between the level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities. This difference is referred to as the spread between the cost of funds and the loan interest rate. Historically, profitability from lending activities has been cyclical and dependent on the needs and strengths of loan customers. In recent history, investors have demanded a more stable revenue stream and banks have therefore placed more emphasis on transaction fees, primarily loan fees but also including service charges on an array of deposit activities and ancillary services (international banking, foreign exchange, insurance, investments, wire transfer, etc.). Lending activities, however, still provide the bulk of a commercial bank's income.
In the past 20 years American banks have taken many measures to ensure that they remain profitable while responding to increasingly changing market conditions. First, this includes the Gramm Leach Bliley Act, which allows banks again to merge with investment and insurance houses. Merging banking, investment, and insurance functions allows traditional banks to respond to increasing consumer demands for "one-stop shopping" by enabling cross-selling of products (which, the banks hope, will also increase profitability). Second, they have expanded the use of risk-based pricing from business lending to consumer lending, which means charging higher interest rates to those customers that are considered to be a higher credit risk and thus increased chance of default on loans. This helps to offset the losses from bad loans, lowers the price of loans to those who have better credit histories, and offers credit products to high risk customers who would otherwise been denied credit. Third, they have sought to increase the methods of payment processing available to the general public and business clients. These products include debit cards, prepaid cards, smart cards, and credit cards. They make it easier for consumers to conveniently make transactions and smooth their consumption over time (in some countries with underdeveloped financial systems, it is still common to deal strictly in cash, including carrying suitcases filled with cash to purchase a home). However, with convenience of easy credit, there is also increased risk that consumers will mismanage their financial resources and accumulate excessive debt. Banks make money from card products through interest payments and fees charged to consumers and transaction fees to companies that accept the cards. Helps in making profit and economic development as a whole
Challenges within the banking industry
The banking industry is a highly regulated industry with detailed and focused regulators. All banks with FDIC-insured deposits have the FDIC as a regulator; however, for examinations,[Clarification needed] the Federal reserve is the primary federal regulator for Fed-member state banks; the Office of the Comptroller of the currency (“OCC”) is the primary federal regulator for national banks; and the Office of the thrift supervision, or OTS, is the primary federal regulator for thrifts. State non-member banks are examined by the state agencies as well as the FDIC. National banks have one primary regulator—the OCC.
Each regulatory agency has their own set of rules and regulations to which banks and thrifts must adhere.
The Federal Financial Institutions Examination Council (FFIEC) was established in 1979 as a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions. Although the FFIEC has resulted in a greater degree of regulatory consistency between the agencies, the rules and regulations are constantly changing.
In addition to changing regulations, changes in the industry have led to consolidations within the Federal Reserve, FDIC, OTS and OCC. Offices have been closed, supervisory regions have been merged, staff levels have been reduced and budgets have been cut. The remaining regulators face an increased burden with increased workload and more banks per regulator. While banks struggle to keep up with the changes in the regulatory environment, regulators struggle to manage their workload and effectively regulate their banks. The impact of these changes is that banks are receiving less hands-on assessment by the regulators, less time spent with each institution, and the potential for more problems slipping through the cracks, potentially resulting in an overall increase in bank failures across the United States.
The changing economic environment has a significant impact on banks and thrifts as they struggle to effectively manage their interest rate spread in the face of low rates on loans, rate competition for deposits and the general market changes, industry trends and economic fluctuations. It has been a challenge for banks to effectively set their growth strategies with the recent economic market. A rising interest rate environment may seem to help financial institutions, but the effect of the changes on consumers and businesses is not predictable and the challenge remains for banks to grow and effectively manage the spread to generate a return to their shareholders.
The management of the banks’ asset portfolios also remains a challenge in today’s economic environment. Loans are a bank’s primary asset category and when loan quality becomes suspect, the foundation of a bank is shaken to the core. While always an issue for banks, declining asset quality has become a big problem for financial institutions. There are several reasons for this, one of which is the lax attitude some banks have adopted because of the years of “good times.” The potential for this is exacerbated by the reduction in the regulatory oversight of banks and in some cases depth of management. Problems are more likely to go undetected, resulting in a significant impact on the bank when they are recognized. In addition, banks, like any business, struggle to cut costs and have consequently eliminated certain expenses, such as adequate employee training programs.
Banks also face a host of other challenges such as aging ownership groups. Across the country, many banks’ management teams and board of directors are aging. Banks also face ongoing pressure by shareholders, both public and private, to achieve earnings and growth projections. Regulators place added pressure on banks to manage the various categories of risk. Banking is also an extremely competitive industry. Competing in the financial services industry has become tougher with the entrance of such players as insurance agencies, credit unions, check cashing services, credit card companies, etc.
As a reaction, banks have developed their activities in financial intruments, through financial market operations such as brokerage and trading and become big players in such activities.
Each regulatory agency has their own set of rules and regulations to which banks and thrifts must adhere.
The Federal Financial Institutions Examination Council (FFIEC) was established in 1979 as a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions. Although the FFIEC has resulted in a greater degree of regulatory consistency between the agencies, the rules and regulations are constantly changing.
In addition to changing regulations, changes in the industry have led to consolidations within the Federal Reserve, FDIC, OTS and OCC. Offices have been closed, supervisory regions have been merged, staff levels have been reduced and budgets have been cut. The remaining regulators face an increased burden with increased workload and more banks per regulator. While banks struggle to keep up with the changes in the regulatory environment, regulators struggle to manage their workload and effectively regulate their banks. The impact of these changes is that banks are receiving less hands-on assessment by the regulators, less time spent with each institution, and the potential for more problems slipping through the cracks, potentially resulting in an overall increase in bank failures across the United States.
The changing economic environment has a significant impact on banks and thrifts as they struggle to effectively manage their interest rate spread in the face of low rates on loans, rate competition for deposits and the general market changes, industry trends and economic fluctuations. It has been a challenge for banks to effectively set their growth strategies with the recent economic market. A rising interest rate environment may seem to help financial institutions, but the effect of the changes on consumers and businesses is not predictable and the challenge remains for banks to grow and effectively manage the spread to generate a return to their shareholders.
The management of the banks’ asset portfolios also remains a challenge in today’s economic environment. Loans are a bank’s primary asset category and when loan quality becomes suspect, the foundation of a bank is shaken to the core. While always an issue for banks, declining asset quality has become a big problem for financial institutions. There are several reasons for this, one of which is the lax attitude some banks have adopted because of the years of “good times.” The potential for this is exacerbated by the reduction in the regulatory oversight of banks and in some cases depth of management. Problems are more likely to go undetected, resulting in a significant impact on the bank when they are recognized. In addition, banks, like any business, struggle to cut costs and have consequently eliminated certain expenses, such as adequate employee training programs.
Banks also face a host of other challenges such as aging ownership groups. Across the country, many banks’ management teams and board of directors are aging. Banks also face ongoing pressure by shareholders, both public and private, to achieve earnings and growth projections. Regulators place added pressure on banks to manage the various categories of risk. Banking is also an extremely competitive industry. Competing in the financial services industry has become tougher with the entrance of such players as insurance agencies, credit unions, check cashing services, credit card companies, etc.
As a reaction, banks have developed their activities in financial intruments, through financial market operations such as brokerage and trading and become big players in such activities.
Banks in the economy
Size of global banking industry
Worldwide assets of the largest 1,000 banks grew 16.3% in 2006/2007 to reach a record $74.2 trillion. This follows a 5.4% increase in the previous year. EU banks held the largest share, 53%, up from 43% a decade earlier. The growth in Europe’s share was mostly at the expense of Japanese banks, whose share more than halved during this period from 21% to 10%. The share of US banks remained relatively stable at around 14%. Most of the remainder was from other Asian and European countries.
The United States has by far the most banks in the world, both in terms of institutions (7,540 at the end of 2005) and branches (75,000). This is an indicator of the geography and regulatory structure of the USA, resulting in a large number of small to medium-sized institutions in its banking system. Japan had 129 banks and 12,000 branches. In 2004, Germany, France, and Italy each had more than 30,000 branches—more than double the 15,000 branches in the UK.
Bank crisis
Banks are susceptible to many forms of risk which have triggered occasional systemic crises. These include liquidity risk (where many depositors may request withdrawals beyond available funds), credit risk (the chance that those who owe money to the bank will not repay it), and interest rate risk (the possibility that the bank will become unprofitable, if rising interest rates force it to pay relatively more on its deposits than it receives on its loans).
Banking crises have developed many times throughout history, when one or more risks have materialized for a banking sector as a whole. Prominent examples include the bank run that occurred during the Great depression, the U.S. Savings and loan crisis in the 1980s and early 1990s, the Japanese banking crisis during the 1990s, and the subprime mortgage crisis in the 2000s. Usually, the governments bail out the bank through rescue plan or individual public intervention
Worldwide assets of the largest 1,000 banks grew 16.3% in 2006/2007 to reach a record $74.2 trillion. This follows a 5.4% increase in the previous year. EU banks held the largest share, 53%, up from 43% a decade earlier. The growth in Europe’s share was mostly at the expense of Japanese banks, whose share more than halved during this period from 21% to 10%. The share of US banks remained relatively stable at around 14%. Most of the remainder was from other Asian and European countries.
The United States has by far the most banks in the world, both in terms of institutions (7,540 at the end of 2005) and branches (75,000). This is an indicator of the geography and regulatory structure of the USA, resulting in a large number of small to medium-sized institutions in its banking system. Japan had 129 banks and 12,000 branches. In 2004, Germany, France, and Italy each had more than 30,000 branches—more than double the 15,000 branches in the UK.
Bank crisis
Banks are susceptible to many forms of risk which have triggered occasional systemic crises. These include liquidity risk (where many depositors may request withdrawals beyond available funds), credit risk (the chance that those who owe money to the bank will not repay it), and interest rate risk (the possibility that the bank will become unprofitable, if rising interest rates force it to pay relatively more on its deposits than it receives on its loans).
Banking crises have developed many times throughout history, when one or more risks have materialized for a banking sector as a whole. Prominent examples include the bank run that occurred during the Great depression, the U.S. Savings and loan crisis in the 1980s and early 1990s, the Japanese banking crisis during the 1990s, and the subprime mortgage crisis in the 2000s. Usually, the governments bail out the bank through rescue plan or individual public intervention
Types of banks
Banks' activities can be divided into retail banking, dealing directly with individuals and small businesses; business banking, providing services to mid-market business; corporate banking, directed at large business entities; private banking, providing wealth management services to high net worth individuals and families; and investment banking, relating to activities on the financial banking. Most banks are profit-making, private enterprises. However, some are owned by government, or are non profit organizations.
Central banks are normally government-owned and charged with quasi-regulatory responsibilities, such as supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity to the banking system and act as the lender of last resort in event of a crisis
Types of retail banks
National Bank of the Republic, Salt Lake City 1908
ATM AL RAJHI BANK
National Copper Bank, Salt Lake City 1911
Commercial banks: the term used for a normal bank to distinguish it from an investment bank. After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital markeet activities. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses.
Community banks: locally operated financial institutions that empower employees to make local decisions to serve their customers and the partners.
Community development banks: regulated banks that provide financial services and credit to under-served markets or populations.
Postal saving banks: savings banks associated with national postal systems.
Private banks: banks that manage the assets of high net worth individuals.
Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks.
Saving banks: in Europe, savings banks take their roots in the 19th or sometimes even 18th century. Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative; in others, socially committed individuals created foundations to put in place the necessary infrastructure. Nowadays, European savings banks have kept their focus on retail banking: payments, savings products, credits and insurances for individuals or small and medium-sized enterprises. Apart from this retail focus, they also differ from commercial banks by their broadly decentralised distribution network, providing local and regional outreach—and by their socially responsible approach to business and society.
Building society and Landes banks: institutions that conduct retail banking.
Ethical banks: banks that prioritize the transparency of all operations and make only what they consider to be socially-responsible investments.
Islamic banks: Banks that transact according to Islamic principles
Types of investment banks
Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their own accounts, make markets, and advise corporations on capital market activities such as mergers and acquisitions.
Merchant banks were traditionally banks which engaged in trade finance. The modern definition, however, refers to banks which provide capital to firms in the form of shares rather than loans. Unlike venture capita firms, they tend not to invest in new companies
Both combined
Universal banks, more commonly known as fianacial services companies, engage in several of these activities. These big banks are very diversified groups that, among other services, also distribute insurance— hence the term bancassurance, a portmanteau combining "banque or bank" and "assurance", signifying that both banking and insurance are provided by the same corporate entity.
Other types of banks
Islamic banks adhere to the concepts of Islamic Laws. This form of banking revolves around several well-established principles based on Islamic canons. All banking activities must avoid interest, a concept that is forbidden in Islam. Instead, the bank earns profit (markup) and fees on the financing facilities that it extends to customers
Central banks are normally government-owned and charged with quasi-regulatory responsibilities, such as supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity to the banking system and act as the lender of last resort in event of a crisis
Types of retail banks
National Bank of the Republic, Salt Lake City 1908
ATM AL RAJHI BANK
National Copper Bank, Salt Lake City 1911
Commercial banks: the term used for a normal bank to distinguish it from an investment bank. After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital markeet activities. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses.
Community banks: locally operated financial institutions that empower employees to make local decisions to serve their customers and the partners.
Community development banks: regulated banks that provide financial services and credit to under-served markets or populations.
Postal saving banks: savings banks associated with national postal systems.
Private banks: banks that manage the assets of high net worth individuals.
Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks.
Saving banks: in Europe, savings banks take their roots in the 19th or sometimes even 18th century. Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative; in others, socially committed individuals created foundations to put in place the necessary infrastructure. Nowadays, European savings banks have kept their focus on retail banking: payments, savings products, credits and insurances for individuals or small and medium-sized enterprises. Apart from this retail focus, they also differ from commercial banks by their broadly decentralised distribution network, providing local and regional outreach—and by their socially responsible approach to business and society.
Building society and Landes banks: institutions that conduct retail banking.
Ethical banks: banks that prioritize the transparency of all operations and make only what they consider to be socially-responsible investments.
Islamic banks: Banks that transact according to Islamic principles
Types of investment banks
Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their own accounts, make markets, and advise corporations on capital market activities such as mergers and acquisitions.
Merchant banks were traditionally banks which engaged in trade finance. The modern definition, however, refers to banks which provide capital to firms in the form of shares rather than loans. Unlike venture capita firms, they tend not to invest in new companies
Both combined
Universal banks, more commonly known as fianacial services companies, engage in several of these activities. These big banks are very diversified groups that, among other services, also distribute insurance— hence the term bancassurance, a portmanteau combining "banque or bank" and "assurance", signifying that both banking and insurance are provided by the same corporate entity.
Other types of banks
Islamic banks adhere to the concepts of Islamic Laws. This form of banking revolves around several well-established principles based on Islamic canons. All banking activities must avoid interest, a concept that is forbidden in Islam. Instead, the bank earns profit (markup) and fees on the financing facilities that it extends to customers
Tuesday, October 6, 2009
Banking channels
Banks offer many different channels to access their banking and other services:
A branch, banking centre or financial centre is a retail location where a bank or financial institution offers a wide array of face-to-face service to its customers.
ATM is a computerised telecommunications device that provides a financial institution's customers a method of financial transactions in a public space without the need for a human clerk or bank teller. Most banks now have more ATMs than branches, and ATMs are providing a wider range of services to a wider range of users. For example in Hong Kong, most ATMs enable anyone to deposit cash to any customer of the bank's account by feeding in the notes and entering the account number to be credited. Also, most ATMs enable card holders from other banks to get their account balance and withdraw cash, even if the card is issued by a foreign bank.
Mail is part of the postal system which itself is a system wherein written documents typically enclosed in envelopes, and also small packages containing other matter, are delivered to destinations around the world. This can be used to deposit cheques and to send orders to the bank to pay money to third parties. Banks also normally use mail to deliver periodic account statements to customers.
Telephone Banking is a service provided by a financial institution which allows its customers to perform transactions over the telephone. This normally includes bill payments for bills from major billers (e.g. for electricity).
Online Banking is a term used for performing transactions, payments etc. over the Internet through a bank, credit union or building society's secure website.
Mobile Banking is a method of using one's mobile phone to conduct simple banking transactions by remotely linking into a banking network.
Video Banking is a term used for performing banking transactions or professional banking consultations via a remote video and audio connection. Video banking can be performed via purpose built banking transaction machines (similar to an Automated teller machine), or via a Videoconference enabled bank branch.
A branch, banking centre or financial centre is a retail location where a bank or financial institution offers a wide array of face-to-face service to its customers.
ATM is a computerised telecommunications device that provides a financial institution's customers a method of financial transactions in a public space without the need for a human clerk or bank teller. Most banks now have more ATMs than branches, and ATMs are providing a wider range of services to a wider range of users. For example in Hong Kong, most ATMs enable anyone to deposit cash to any customer of the bank's account by feeding in the notes and entering the account number to be credited. Also, most ATMs enable card holders from other banks to get their account balance and withdraw cash, even if the card is issued by a foreign bank.
Mail is part of the postal system which itself is a system wherein written documents typically enclosed in envelopes, and also small packages containing other matter, are delivered to destinations around the world. This can be used to deposit cheques and to send orders to the bank to pay money to third parties. Banks also normally use mail to deliver periodic account statements to customers.
Telephone Banking is a service provided by a financial institution which allows its customers to perform transactions over the telephone. This normally includes bill payments for bills from major billers (e.g. for electricity).
Online Banking is a term used for performing transactions, payments etc. over the Internet through a bank, credit union or building society's secure website.
Mobile Banking is a method of using one's mobile phone to conduct simple banking transactions by remotely linking into a banking network.
Video Banking is a term used for performing banking transactions or professional banking consultations via a remote video and audio connection. Video banking can be performed via purpose built banking transaction machines (similar to an Automated teller machine), or via a Videoconference enabled bank branch.
Law of banking
Banking law is based on a contractual analysis of the relationship between the bank and the customer—defined as any entity for which the bank agrees to conduct an account.
The law implies rights and obligations into this relationship as follows:
The bank account balance is the financial position between the bank and the customer: when the account is in credit, the bank owes the balance to the customer; when the account is overdrawn, the customer owes the balance to the bank.
The bank agrees to pay the customer's cheques up to the amount standing to the credit of the customer's account, plus any agreed overdraft limit.
The bank may not pay from the customer's account without a mandate from the customer, e.g. a cheque drawn by the customer.
The bank agrees to promptly collect the cheques deposited to the customer's account as the customer's agent, and to credit the proceeds to the customer's account.
The bank has a right to combine the customer's accounts, since each account is just an aspect of the same credit relationship.
The bank has a lien on cheques deposited to the customer's account, to the extent that the customer is indebted to the bank.
The bank must not disclose details of transactions through the customer's account—unless the customer consents, there is a public duty to disclose, the bank's interests require it, or the law demands it.
The bank must not close a customer's account without reasonable notice, since cheques are outstanding in the ordinary course of business for several days.
These implied contractual terms may be modified by express agreement between the customer and the bank. The statutes and regulations in force within a particular jurisdiction may also modify the above terms and/or create new rights, obligations or limitations relevant to the bank-customer relationship
Entry regulation
Currently in most jurisdictions commercial banks are regulated by government entities and require a special bank licence to operate.
Usually the definition of the business of banking for the purposes of regulation is extended to include acceptance of deposits, even if they are not repayable to the customer's order—although money lending, by itself, is generally not included in the definition.
Unlike most other regulated industries, the regulator is typically also a participant in the market, i.e. a government-owned (central) bank. Central banks also typically have a monopoly on the business of issuing banknotes. However, in some countries this is not the case. In the UK, for example, the financieal service authorities licences banks, and some commercial banks (such as the Bank of Scotland) issue their own banknotes in addition to those issued by the Bank of England, the UK government's central bank.
Some types of financial institution, such as building societies and credit unions, may be partly or wholly exempt from bank licence requirements, and therefore regulated under separate rules.
The requirements for the issue of a bank licence vary between jurisdictions but typically include:
Minimum capital
Minimum capital ratio
'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or senior officers
Approval of the bank's business plan as being sufficiently prudent and plausible.
The law implies rights and obligations into this relationship as follows:
The bank account balance is the financial position between the bank and the customer: when the account is in credit, the bank owes the balance to the customer; when the account is overdrawn, the customer owes the balance to the bank.
The bank agrees to pay the customer's cheques up to the amount standing to the credit of the customer's account, plus any agreed overdraft limit.
The bank may not pay from the customer's account without a mandate from the customer, e.g. a cheque drawn by the customer.
The bank agrees to promptly collect the cheques deposited to the customer's account as the customer's agent, and to credit the proceeds to the customer's account.
The bank has a right to combine the customer's accounts, since each account is just an aspect of the same credit relationship.
The bank has a lien on cheques deposited to the customer's account, to the extent that the customer is indebted to the bank.
The bank must not disclose details of transactions through the customer's account—unless the customer consents, there is a public duty to disclose, the bank's interests require it, or the law demands it.
The bank must not close a customer's account without reasonable notice, since cheques are outstanding in the ordinary course of business for several days.
These implied contractual terms may be modified by express agreement between the customer and the bank. The statutes and regulations in force within a particular jurisdiction may also modify the above terms and/or create new rights, obligations or limitations relevant to the bank-customer relationship
Entry regulation
Currently in most jurisdictions commercial banks are regulated by government entities and require a special bank licence to operate.
Usually the definition of the business of banking for the purposes of regulation is extended to include acceptance of deposits, even if they are not repayable to the customer's order—although money lending, by itself, is generally not included in the definition.
Unlike most other regulated industries, the regulator is typically also a participant in the market, i.e. a government-owned (central) bank. Central banks also typically have a monopoly on the business of issuing banknotes. However, in some countries this is not the case. In the UK, for example, the financieal service authorities licences banks, and some commercial banks (such as the Bank of Scotland) issue their own banknotes in addition to those issued by the Bank of England, the UK government's central bank.
Some types of financial institution, such as building societies and credit unions, may be partly or wholly exempt from bank licence requirements, and therefore regulated under separate rules.
The requirements for the issue of a bank licence vary between jurisdictions but typically include:
Minimum capital
Minimum capital ratio
'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or senior officers
Approval of the bank's business plan as being sufficiently prudent and plausible.
Accounting for bank accounts
Bank statements are accounting records produced by banks under the various accounting standards of the world. Under GAAP and IFRS there are two kinds of accounts: debit and credit. Credit accounts are Revenue, Equity and Liabilities. Debit Accounts are Assets and Expenses. This means you credit a credit account to increase its balance, and you debit a debit account to increase its balance.
This also means you debit your savings account every time you deposit money into it (and the account is normally in deficit), while you credit your credit card account every time you spend money from it (and the account is normally in credit).
However, if you read your bank statement, it will say the opposite—that you credit your account when you deposit money, and you debit it when you withdraw funds. If you have cash in your account, you have a positive (or credit) balance; if you are overdrawn, you have a negative (or deficit) balance.
The reason for this is that the bank, and not you, has produced the bank statement. Your savings might be your assets, but the bank's liability, so they are credit accounts (which should have a positive balance). Conversely, your loans are your liabilities but the bank's assets, so they are debit accounts (which should have a also have a positive balance).
Where bank transactions, balances, credits and debits are discussed below, they are done so from the viewpoint of the account holder—which is traditionally what most people are used to seeing
This also means you debit your savings account every time you deposit money into it (and the account is normally in deficit), while you credit your credit card account every time you spend money from it (and the account is normally in credit).
However, if you read your bank statement, it will say the opposite—that you credit your account when you deposit money, and you debit it when you withdraw funds. If you have cash in your account, you have a positive (or credit) balance; if you are overdrawn, you have a negative (or deficit) balance.
The reason for this is that the bank, and not you, has produced the bank statement. Your savings might be your assets, but the bank's liability, so they are credit accounts (which should have a positive balance). Conversely, your loans are your liabilities but the bank's assets, so they are debit accounts (which should have a also have a positive balance).
Where bank transactions, balances, credits and debits are discussed below, they are done so from the viewpoint of the account holder—which is traditionally what most people are used to seeing
Traditional banking activities
Banks act as payment agents by conducting checking or current accounts for customers, paying cheaque drawn by customers on the bank, and collecting cheques deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer, EFTPOS, and ATM.
Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current accounts, by making installment loans, and by investing in marketable debt securities and other forms of money lending.
Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments. Non-banks that provide payment services such as remittance companies are not normally considered an adequate substitute for having a bank account.
Banks borrow most funds from households and non-financial businesses, and lend most funds to households and non-financial businesses, but non-bank lenders provide a significant and in many cases adequate substitute for bank loans, and money market funds, cash management trusts and other non-bank financial institutions in many cases provide an adequate substitute to banks for lending savings to.
Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current accounts, by making installment loans, and by investing in marketable debt securities and other forms of money lending.
Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments. Non-banks that provide payment services such as remittance companies are not normally considered an adequate substitute for having a bank account.
Banks borrow most funds from households and non-financial businesses, and lend most funds to households and non-financial businesses, but non-bank lenders provide a significant and in many cases adequate substitute for bank loans, and money market funds, cash management trusts and other non-bank financial institutions in many cases provide an adequate substitute to banks for lending savings to.
Uses of Bank Funds
Bank funds can be used in two ways:
1. Non profitable use
2. Profitable use
Non profitable uses
Banks muse use some of its money without any profit. Such a use is compulsory by law and nature of the business. There are:
1. Purchases of fixed assets.
2. Maintaining cash reserve/till cash
3. Bank reserve at the central bank
1. Purchases of Fixed Assets:
To carry out its business the bank must invest in (i.e. buy) fixed assets which include building, land, furniture. fixture, equipment. as typewriters, cars, vans, computers.etc. These assets do not yield a direct profit or income but are necessary to carry out the bussiness.
2. Cash reserve/Till cash:
The bank must keep a sufficient amount of cash in the reserve to meet checking obligations.
This cash remains in the vaults of the bank and does bring no profits. but it is essential to keep it up to make payments against the cheques presented at the bank for cash.
3. Bank reserve:
All schedule commercial banks are bound to keep a certain part of their deposits at the central bank as mandatory bank reserve. this reserve at the central ank yields no profit to the bank. In the USA commercial banks can put their mandatory reserve in other commercial banks also, with no profit as usual.
Profitable Uses
Profitable use of funds refers to investment that yields profit to the bank. Banks must invest profitably to meet expenses, distribute dividends, and pay interst.
Profitable use may be classified as follows:
1. Lending
2. Investment
1. Lending:
Banks employ their funds inadvancing money and in return get interet income. The loans are provided to the following businesses.
1. Commercial and industrial concerns.
2. Agriculturists
3. House building companies
4. Individuals
5. Brokers
Banks lend their funds in the following ways
1. Call loans
2. Overdrafts
3. Cash credit
4. Loans
5. Discounting bills of exchange
Investments:
Investments refers to buying shares, bonds, debentures, treasury bills in the open market. Banks earn money in the formof dividens, interests and capital gains. Shares and bonds can be bought and sold at the stock exchange. The bank employs its fund in t he following types of investment.
1. Government Securities
They are referred to gold edged securities because they are the safest investments. They are of the following kinds.
a. Treasury bills
b. Treasury notes/coupons
c. Treasury bonds
2. Provincial and Local Gorvernment Bonds
Provincial and local governments need fund to carry out their day-to-day functions. Some of these requirements are financed by the grant-in-aid of the federal government and the provincial an local taxes. Since it takes time to collect taxes and government cannot stop their function their function they issue bonds to raise needed funds.
3. Foreign Governments' Bonds
Foreign governmetns raise funds by issueing bonds on the international markets. The commercial bankers prefer the because they are extremely secured, carry good rate of interest, and yield foriegn exchage.
4. Others Securities
Other securities include bonds or debenture government institutions.
5. Corporate Securities
Public limited companies float their shares and bonds through stock exchanges. Commercial banks purchase them provided the company is financially sound and its business is progressive. Although they are long-term investment but can be sold any time on the stock exchange
1. Non profitable use
2. Profitable use
Non profitable uses
Banks muse use some of its money without any profit. Such a use is compulsory by law and nature of the business. There are:
1. Purchases of fixed assets.
2. Maintaining cash reserve/till cash
3. Bank reserve at the central bank
1. Purchases of Fixed Assets:
To carry out its business the bank must invest in (i.e. buy) fixed assets which include building, land, furniture. fixture, equipment. as typewriters, cars, vans, computers.etc. These assets do not yield a direct profit or income but are necessary to carry out the bussiness.
2. Cash reserve/Till cash:
The bank must keep a sufficient amount of cash in the reserve to meet checking obligations.
This cash remains in the vaults of the bank and does bring no profits. but it is essential to keep it up to make payments against the cheques presented at the bank for cash.
3. Bank reserve:
All schedule commercial banks are bound to keep a certain part of their deposits at the central bank as mandatory bank reserve. this reserve at the central ank yields no profit to the bank. In the USA commercial banks can put their mandatory reserve in other commercial banks also, with no profit as usual.
Profitable Uses
Profitable use of funds refers to investment that yields profit to the bank. Banks must invest profitably to meet expenses, distribute dividends, and pay interst.
Profitable use may be classified as follows:
1. Lending
2. Investment
1. Lending:
Banks employ their funds inadvancing money and in return get interet income. The loans are provided to the following businesses.
1. Commercial and industrial concerns.
2. Agriculturists
3. House building companies
4. Individuals
5. Brokers
Banks lend their funds in the following ways
1. Call loans
2. Overdrafts
3. Cash credit
4. Loans
5. Discounting bills of exchange
Investments:
Investments refers to buying shares, bonds, debentures, treasury bills in the open market. Banks earn money in the formof dividens, interests and capital gains. Shares and bonds can be bought and sold at the stock exchange. The bank employs its fund in t he following types of investment.
1. Government Securities
They are referred to gold edged securities because they are the safest investments. They are of the following kinds.
a. Treasury bills
b. Treasury notes/coupons
c. Treasury bonds
2. Provincial and Local Gorvernment Bonds
Provincial and local governments need fund to carry out their day-to-day functions. Some of these requirements are financed by the grant-in-aid of the federal government and the provincial an local taxes. Since it takes time to collect taxes and government cannot stop their function their function they issue bonds to raise needed funds.
3. Foreign Governments' Bonds
Foreign governmetns raise funds by issueing bonds on the international markets. The commercial bankers prefer the because they are extremely secured, carry good rate of interest, and yield foriegn exchage.
4. Others Securities
Other securities include bonds or debenture government institutions.
5. Corporate Securities
Public limited companies float their shares and bonds through stock exchanges. Commercial banks purchase them provided the company is financially sound and its business is progressive. Although they are long-term investment but can be sold any time on the stock exchange
Saturday, October 3, 2009
Many of us don’t own credit card that means we are easily deprived of online shopping. Believe me; at times we find ourselves in deep trouble due to not having a credit card, and life seems impossible without credit card.
I am like many of you, who don’t like the idea of credit card. Just because of tons of service charges they apply for no good reason. So I had no credit card until few months back. Then I decided to start this blog and had to purchase a hosting server. So that was the time, when I came to know how important a credit card can be. Khair it’s a long story about how I managed to get my credit card and leased my server.
I am like many of you, who don’t like the idea of credit card. Just because of tons of service charges they apply for no good reason. So I had no credit card until few months back. Then I decided to start this blog and had to purchase a hosting server. So that was the time, when I came to know how important a credit card can be. Khair it’s a long story about how I managed to get my credit card and leased my server.
Short Notes
INTERNATIONAL TRADE
International trade refers to that trade that take place between a country and a number of countries of the world. In other words we can say that all the trading activities that take place across the national boundaries is called International or Foreign trade. It is effect is called balance of payments.
INTERNAL TRADE
Internal or Domestic or inter-regional trade is the trade between different regions in the same country. We can also say that all the trading activities that take place within a country is called Internal trade.
ABSOLUTE ADVANTAGE
A country due to its most favourable geographical conditions may have an advantage in the production of a particular commodity over other countries. This advantage is known as absolute advantage for that country over rest of the world. The absolute advantage results in a regular inflow and outflow of goods which gives rise to International Trade.
COMPARATIVE ADVANTAGE
When a country has an advantage of production and move than one commodity it prefers to produce only one commodity that is more advantageous for other. This advantage is calculated by comparing the different commodities that how much they paying commodity is selected and the country goes for specializing. This is known as comparative advantage
International trade refers to that trade that take place between a country and a number of countries of the world. In other words we can say that all the trading activities that take place across the national boundaries is called International or Foreign trade. It is effect is called balance of payments.
INTERNAL TRADE
Internal or Domestic or inter-regional trade is the trade between different regions in the same country. We can also say that all the trading activities that take place within a country is called Internal trade.
ABSOLUTE ADVANTAGE
A country due to its most favourable geographical conditions may have an advantage in the production of a particular commodity over other countries. This advantage is known as absolute advantage for that country over rest of the world. The absolute advantage results in a regular inflow and outflow of goods which gives rise to International Trade.
COMPARATIVE ADVANTAGE
When a country has an advantage of production and move than one commodity it prefers to produce only one commodity that is more advantageous for other. This advantage is calculated by comparing the different commodities that how much they paying commodity is selected and the country goes for specializing. This is known as comparative advantage
International Trade
Some of the reasons that why do trade between different countries occur are discussed under the following heads.
NATURAL ENDOWMENTS
Differences in advantages of trade to different countries may arise because of natural reasons like geographical and climatic conditions. This lead to territorial division of labour and localization of industry. This different countries specialize in the production of different things.
HUMAN CAPABILITIES
People in some countries are physically more sturdy where as in others they are intellectually superior. Some have greater skill and dexterity thus the countries. Which do not possess these qualities try to share with them.
STOCK OF CAPITAL
Some countries have large stock of capital goods like U.K, U.S.A, etc. These gives an opportunity to the underdeveloped countries or those which lack these capital goods to exchange or trade them through the channel of distribution internationally.
SPECIALIZATION IN PRODUCTION
A country may have a comparative cost advantage in production in more than one commodity over other countries but produces only one commodity for the sake of specialization. It helps in improving the quality of production to a great extent.
NATURAL ENDOWMENTS
Differences in advantages of trade to different countries may arise because of natural reasons like geographical and climatic conditions. This lead to territorial division of labour and localization of industry. This different countries specialize in the production of different things.
HUMAN CAPABILITIES
People in some countries are physically more sturdy where as in others they are intellectually superior. Some have greater skill and dexterity thus the countries. Which do not possess these qualities try to share with them.
STOCK OF CAPITAL
Some countries have large stock of capital goods like U.K, U.S.A, etc. These gives an opportunity to the underdeveloped countries or those which lack these capital goods to exchange or trade them through the channel of distribution internationally.
SPECIALIZATION IN PRODUCTION
A country may have a comparative cost advantage in production in more than one commodity over other countries but produces only one commodity for the sake of specialization. It helps in improving the quality of production to a great extent.
Advantages and Disadvantage of
ADVANTAGES OF INTERNATIONAL TRADE
Various advantages are named for the countries entering into trade relations on a international scale such as:
A country may import things which it cannot produce
International trade enables a country to consume things which either cannot be produced within its borders or production may cost very high. Therefore it becomes cost cheaper to import from other countries through foreign trade.
Maximum utilization of resources
International trade helps a country to utilize its resources to the maximum limit. If a country does not takes up imports and exports then its resources remain unexplorted. Thus it helps to eliminate the wastage of resources.
Benefit to consumer
Imports and exports of different countries provide opportunities to the consumer to buy and consume those goods which cannot be produced in their own country. They therefore get a diversity in choices.
Reduces trade fluctuations
By making the size of the market large with large supplies and extensive demand international trade reduces trade fluctuations. The prices of goods tend to remain more stable.
Utilization of Surplus produce
International trade enables different countries to sell their surplus products to other countries and earn foreign exchange.
Fosters International trade
International trade fosters peace, goodwill and mutual understanding among nations. Economic interdependence of countries often leads to close cultural relationship and thus avoid war between them.
DISADVANTAGES OF INTERNATIONAL TRADE
International trade does not always amount to blessings. It has certain drawbacks also such as:
Import of harmful goods
Foreign trade may lead to import of harmful goods like cigarettes, drugs etc. Which may run the health of the residents of the country. E.g. the people of China suffered greatly through opium imports.
It may exhaust resources
Internation trade leads to intensive cultivation of land. Thus it has the operations of law of diminishing returns in agricultural countries. It also makes a nation poor by giving too much burden over the resources.
Over Specialization
Over Specialization may be disasterous for a country. A substitute may appear and ruin the economic lives of millions.
Danger of Starvation
A country might depend for her food mainly on foreign countries. In times of war there is a serious danger of starvation for such countries.
One country may gain at the expensive of Another
One of the serious drawbacks of foreign trade is that one country may gain at the expense of other due to certain accidental advantages. The Industrial revolution is Great Britain ruined Indian handicrafts during the nineteenth century.
It may lead to war
Foreign trade may lead to war different countries compete with each other in finding out new markets and sources of raw material for their industries and frequently come into clash. This was one of the causes of first and second world war.
Various advantages are named for the countries entering into trade relations on a international scale such as:
A country may import things which it cannot produce
International trade enables a country to consume things which either cannot be produced within its borders or production may cost very high. Therefore it becomes cost cheaper to import from other countries through foreign trade.
Maximum utilization of resources
International trade helps a country to utilize its resources to the maximum limit. If a country does not takes up imports and exports then its resources remain unexplorted. Thus it helps to eliminate the wastage of resources.
Benefit to consumer
Imports and exports of different countries provide opportunities to the consumer to buy and consume those goods which cannot be produced in their own country. They therefore get a diversity in choices.
Reduces trade fluctuations
By making the size of the market large with large supplies and extensive demand international trade reduces trade fluctuations. The prices of goods tend to remain more stable.
Utilization of Surplus produce
International trade enables different countries to sell their surplus products to other countries and earn foreign exchange.
Fosters International trade
International trade fosters peace, goodwill and mutual understanding among nations. Economic interdependence of countries often leads to close cultural relationship and thus avoid war between them.
DISADVANTAGES OF INTERNATIONAL TRADE
International trade does not always amount to blessings. It has certain drawbacks also such as:
Import of harmful goods
Foreign trade may lead to import of harmful goods like cigarettes, drugs etc. Which may run the health of the residents of the country. E.g. the people of China suffered greatly through opium imports.
It may exhaust resources
Internation trade leads to intensive cultivation of land. Thus it has the operations of law of diminishing returns in agricultural countries. It also makes a nation poor by giving too much burden over the resources.
Over Specialization
Over Specialization may be disasterous for a country. A substitute may appear and ruin the economic lives of millions.
Danger of Starvation
A country might depend for her food mainly on foreign countries. In times of war there is a serious danger of starvation for such countries.
One country may gain at the expensive of Another
One of the serious drawbacks of foreign trade is that one country may gain at the expense of other due to certain accidental advantages. The Industrial revolution is Great Britain ruined Indian handicrafts during the nineteenth century.
It may lead to war
Foreign trade may lead to war different countries compete with each other in finding out new markets and sources of raw material for their industries and frequently come into clash. This was one of the causes of first and second world war.
Theory of Comparative Advantage
ASSUMPTIONS OF THE THEORY
The comparative cost theory is based on the following assumptions:
i. labour is regarded as the sole factor of production and the cost of production only consists of labour cost.
ii. Production is subject to the law of constant returns.
iii. Factors of production are assumed to the perfectly modile within a country but immobile between countries.
CRITICISM
The theory of comparative cost is criticized on the following grounds.
Assumption of Constant Cost
The classical economists were of the opinion that additional quantities & a commodity could be obtained with the same expenditure of cost per unit us previously But this is not valid assumptions lost ratios are subject to change where specialization between the two countries has gone a pace.
Some Static Assumptions
The comparative cost theory in a number of static assumptions of fixed costs industrial production functions between trading countries and fixed supply of land, labour, capital etc. It cannot be applied 100% to the real world.
Assumption of perfect mobility inside and immobility outside a country
This assumptions seems to be un-applicable to todays modern world of communication and technology the development of cheap quick and safe means of transport and communication has broken down this immobility to a great extent.
The comparative cost theory is based on the following assumptions:
i. labour is regarded as the sole factor of production and the cost of production only consists of labour cost.
ii. Production is subject to the law of constant returns.
iii. Factors of production are assumed to the perfectly modile within a country but immobile between countries.
CRITICISM
The theory of comparative cost is criticized on the following grounds.
Assumption of Constant Cost
The classical economists were of the opinion that additional quantities & a commodity could be obtained with the same expenditure of cost per unit us previously But this is not valid assumptions lost ratios are subject to change where specialization between the two countries has gone a pace.
Some Static Assumptions
The comparative cost theory in a number of static assumptions of fixed costs industrial production functions between trading countries and fixed supply of land, labour, capital etc. It cannot be applied 100% to the real world.
Assumption of perfect mobility inside and immobility outside a country
This assumptions seems to be un-applicable to todays modern world of communication and technology the development of cheap quick and safe means of transport and communication has broken down this immobility to a great extent.
Thursday, October 1, 2009
Subscribe to:
Posts (Atom)