Types of Banks

There can be different types of banks.

Central banks supervise the banking system, the fixed minimum interest rate, issue bank notes, control the money supply, influence exchange rates and act as lender of last resort.

Commercial banks are businesses that trade in money. They borrow money from the public, crediting them with a deposit. The deposit is a liability of a bank. It is money owed to depositors. In turn the bank lends money to the firms, households or governments wishing to borrow. Commercial banks are financial intermediaries with a government license to make loans and issue deposits, including deposits against which cheques can be written.

In some European countries, notably Germany, Austria and Switzerland, there are universal banks which combine deposit and loan banking system with share and bond dealing, investment advice, etc. Yet even universal bank usually forms a subsidiary, known as a financial house money – at several per cent over the base lending rate – for hire purchase or installment credit, that is, loans to consumers that are repaid in regular, equal monthly amounts.

In Britain, the USA and Japan, however, there is, or used to be, a strict separation between commercial banks and banks that do stockbroking or bond dealing. Thus in Britain, merchant banks specialize in raising funds for industry on the various financial markets, financing international trade, issuing and underwriting securities, dealing with takeovers and mergers, issuing government bonds and so on. They also offer stockbroking and portfolio management services to rich corporate and individual clients. Investment banks in the USA are similar, but they can only act as intermediaries offering advisory services and do not offer loans themselves.

In Britain there are also building societies that provide mortgages, i.e. they lend money to home-buyers on the security of houses and flats and attract savers by paying higher interest than the banks. The savings and loan associations in the USA served a similar function, until most of them went spectacularly bankrupt at the end of 1980s.

There are also supranational banks such as World Bank or the European Bank for Reconstruction and Development, which are generally concerned with economic development.

Assignments

I. Answer the questions.

1. What do the central banks supervise?

2. What are commercial banks?

3. What does universal bank usually form a subsidiary for?

4. What do merchant banks in Britain specialize in?

5. What do building societies in Britain provide?

6. What types of banks do you know now?

II. Translate the following sentences into Ukrainian. Put questions to any two of them.

1. Central banks supervise the banking system, the fixed minimum interest rate, issue bank notes, control the money supply, influence exchange rates and act as lender of last resort.

2. Commercial banks are financial intermediaries with a government license to make loans and issue deposits, including deposits against which cheques can be written.

3. In some European countries, notably Germany, Austria and Switzerland, there are universal banks which combine deposit and loan banking system with share and bond dealing, investment advice, etc.

4. In Britain, the USA and Japan, however, there is, or used to be, a strict separation between commercial banks and banks that do stockbroking or bond dealing.

5. There are also supranational banks such as World Bank or the European Bank for Reconstruction and Development, which are generally concerned with economic development.

III. Translate the following sentences into English.

1. Комерційні банки – це підприємства, які ведуть торгівлю грошима.

2. Комерційні банки позичають гроші громадськості, яка кредитує їх депозитами (вносить на депозит).

3. У Великій Британії, США та Японії є, або було раніше, суворе розмежування між комерційними банками та банками, які займаються фондовим брокерством чи справами з облігаціями.

4. Депозити – це пасиви банка.

IV. Name the following definitions.

1. Banks, that supervise the banking system, the fixed minimum interest rate, issue bank notes, control the money supply, influence exchange rates and act as lender of last resort.

2. Financial intermediaries with a government license to make loans and issue deposits, including deposits against which cheques can be written.

V. Define the following terms:

merchant bank, investment bank, universal banks, financial house money, mortgage.

VI. Make a scheme to different types of banks.

VII. Work in groups of three. In pairs make a dialogue based on the text. Ask the third student to report it.

VIII. Sum up what the text says about different types of banks.

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