1. Mag. Maria Peer 1 Banks and their business Deposit taking e.g. savings deposits Lending e.g. mortgage loans Informations, consultations Services e.g. money transfer

2. Mag. Maria Peer 2 Basic functions of banks  To make and receive payments for customers  To accept deposits and to keep them safe for customers  To lend money to customers These functions are carried out through holding accounts for customers.

3. Mag. Maria Peer 3 Accounts  Current account: used for transfer functions  Deposit account and saving accounts are used for deposits  When a loan is agreed a separate loan account is created for the customer

4. Mag. Maria Peer 4 Deposits and loans Bank Deposit Loan

5. Mag. Maria Peer 5 Deposits and loans Banks accept deposits from various customers (e.g. private individuals, business enterprises, public corporations). These deposits, the liabilities of the bank, enable the banks to grant loans to various borrowers (again private individuals, business enterprises, public corporations). The granted loans are assets in the account of the bank.

6. Mag. Maria Peer 6 Banks and their business  Banks try to find depositors  Banks transform funds  Banks try to find customers who are in need of money  Banks take on the risks of default  Counselling and administration

7. Mag. Maria Peer 7 Banks transform funds  Transformation of size: banks transform many small deposits into big loans  Tranformation of term: a part of short term deposits remains at the disposal of the bank for a longer period of time, e.g. savings deposits repayable on demand remain at the banks disposal for 3 years in average.

8. Mag. Maria Peer 8 Banks take on risk and default  Banks use their know-how to check whether the borrower is able to repay the loan and by doing this, they minimise the risk of default. It is easier for banks than for private individuals to take on the risk of default. This is because they grant:  A variety of loans (to different customers, e.g. private individuals, business enterprises, industries), thus they spread the risk.  Numerous loans of which only a few are not repaid.

9. Mag. Maria Peer 9 How banks raise capital for lending Basically a bank like any other company has two possibilities of raising capital. Owners‘ funds or equity and creditors‘ funds or debt funds. Creditors‘ Deposits Sight deposits Time deposits Savings deposits Loans from other banks Inter bank financing Issue of their own bonds

10. Mag. Maria Peer 10 Sight deposits These are acconts with banks, from which all the money can be withdrawn on demand, e.g. current accounts. These accounts are held by depositors who need this liquidity for their payments transactions. Sight deposits usually pay very little interest. As not all the money must be held at the customers‘ disposal, banks can use a certain part, the so-called „deposit base“, of the sight deposits for loans.