An Overview of Banks and Their Services Chapter 1

Structure of Financial System: Flow of Funds

Answerssssssssssssss…………?????? The Basel Committee The State Bank of Pakistan’s Prudential regulations The largest bank: By deposits By number of branches By capital

The banking industry is consolidating and diversifying simultaneously. The traditional definition of a bank has been blurred by the introduction of new products and a wave of mergers, which have dramatically expanded the scope of activities that banks engage in and where products and services are offered. Formerly, a commercial bank was defined as a firm that both accepted demand deposits and made commercial loans. Today, these two products are offered by many financial services companies: including commercial banks, savings banks, credit unions, insurance companies, investment banks, finance companies, retailers, and pension funds. What constitutes a bank, today is not as important as what products and services are offered and in what geographic markets the financial services company competes in.

While competition has increased the number of firms offering financial products and services, Consolidation, in turn, has increased the proportion of banking assets controlled by the largest banks. Not surprisingly, the same trends appear globally. The United States currently has several banks that operate in all 50 states and many places outside the U.S. The largest foreign banks have significant operations in the U.S. and throughout the world.

NonBank Banks Depository institutions offering checking accounts or commercial loans but NOT “both”

The key Non bank competitors Bankers face page 7 Insurance companies and pension plans Mutual Funds Real Estate Developers and Mortgage Companies Checking-Cashing Firms, Small loan Vendors, and Finance Companies Security Brokers and Dealers Credit Union and Other Thrift Institutions

Service Areas in the Modern Bank The Credit Loan function The payments (transactions) The Thrift (Saving) The investment/financial planning function The real estate and community developments function The cash management function The merchant banking (temporary stock investment) The investment banking (security underwriting) The security brokerage (trading) The insurance (risk management)

Services banks offers to the public Currency exchange Discounting commercial notes Saving deposits Demand deposit Trust services…. Granting consumer loans (City Bank) Financial advisory Cash management Equipment leasing service Insurance policies Retirement plans

Dealing in securities Security brokerage Offering mutual funds and annuities Merchant banking

The fundamental forces of change … increased competition Competition for deposits Competition for loans Competition for payment services Competition for other financial services

Basel Committee The Basel Committee on Banking Supervision provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide. It seeks to do so by exchanging information on national supervisory issues, approaches and techniques, with a view to promoting common understanding

At times, the Committee uses this common understanding to develop guidelines and supervisory standards in areas where they are considered desirable. In this regard, the Committee is best known for its international standards on capital adequacy; the Core Principles for Effective Banking Supervision; and the Concordat on cross-border banking supervision.

Prudential Regulations (SBP) Prudential Regulations for Agriculture Financing Prudential Regulations for Corporate / Commercial banking Prudential Regulations for SMEs Financing (as of 31st January, 2009) Prudential Regulations for Consumer Financing (as of 31st January, 2009) Prudential regulations for Micro Finance Banks commercial Banking