Types of Banking Institutions

Student: What type of bank is this? Banker: We're a commercial bank.

S. B. S. B. S. B. S. B.

Does that mean that your services arc limited?

To some extent. For instance, we can't offer the

fiduciary services that a trust company can.

What are they?

Well, they have lo do with pre^dminislralion of

trusts and estates.

Suppose 1 wanted lo buy or sell some securities. Docs

your bank handle such transactions?

Yes, through our brokerage house.

Is your broker a member of the slock exchange?

Yes.

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S.: В.: В.:

This is a state bank, isn't it?

That's right.

Do you offer fewer services than a national bank?

No. In general, the only difference is that a state bank

S. В.

gets its charter from the slate it's in, and the na­tional bank gets its charter from the federal govern­ment in Washington, D.C. Are there banks that don't offer regular commercial

services?

Oh, yes. For example Savings and Loan Associations and the Federal Land Banks arc only lending insti­tutions.

Would you say a savings and loan association is a bank?

в. S. в. S. в.

No. I'd rather call it a financial institution. How about a credit union? That's not really a bank, either. And a finance company is something entirely different. Yes.

Questions on the dialogue:

1. Whal regular services does a commercial bank offer lo ils
customers?

2. Whal is Ihe difference belween a nalional bank and a slate
bank?

3. Which inslilulions deal wilh fiduciary services?

4. Whal do you understand by fiduciary services?

5. What is Ihe job of a broker?

6. Where are brokerage transactions concluded?

7. What services are offered by:

—Savings and Loan Associalions?

—Federal Land Banks?

—credil unions?

Text

The reason for which the Bank of England was founded in 1694 was lo look afler Ihe Government's debl, commonly called the National Debt, and this is still a most important function. A large proper lion of the debl is made up of Gov­ernment bonds, that is pieces of paper staling that the holder has subscribed such-and-such a sum of money and is entilled to so much interest per year. Two world wars have helped to swell the issue of bonds to some $,40,000 million. Another sizable slice of debl is in the form of Treasury bills which arc rather like bonds wilh a very shorl life span before Ihe Gov-ernmenl buys Ihem back again and so repays Ihe loan. Their purpose is to provide Ihe governmenl wilh day-lo-day money lo cover Ihe inevitable gaps which occur belween ils disburse-inenls, e.g. on such Ihings as uncmploymenl benefil and ils receipls from laxation. A Ihird type of debl is the group of National Savings Securities, of which ordinary Post Office (now Nalional Savings Bank) accounts and Premium Bonds are perhaps the best-known examples.

The Bank of England is Ihe ullimale source from which Ihe general public can oblain cash. Other English banks used lo issue Iheir own notes, but now they all use the Bank of En­gland notes. Scottish banks have continued lo issue Iheir own, hut it is an expensive undertaking, and is closely controlled by Ihe cenlral bank in England.

The Bank also looks afler Ihe bank accounl of the Govern­ment just like an ordinary bank docs for its customers. Into this accounl go all lax receipls and/any other transfers of money from Ihe various banks, and out of il go all payments. Because all the imporlanl inslilulions in the Cily main lain accounls al Ihe Bank, Iransfers of money between Ihem and Ihe Governmenl, which go on every day, are made very eas­ily. The Bank merely debils one aecounl and credits another. The Bank also holds accounls for important inlernalional in­slilulions like Ihe World Bank, for just over a hundred cen-

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tral banks and also for some ordinary foreign banks, making a total of nearly two hundred accounts.

The Exchange Equalisation Account is the name of the fund in which are held the gold and foreign currency reserves of the country. The managers of the fund have the task of inter­vening from lime to time in the otherwise free market for foreign currency, so as to influence the price of the pound in line with Government policy, or simply to try to maintain a reasonably orderly market.

The pound is not the only currency whose price has to be carefully controlled. Most of the major world currencies have the same problems, and all greatly benefit from international cooperation. Dealing with other central banks and managing money on an international scale has l>ecomc an important side of the Bank's work. Every month the Governor (lies to Basle to spend a week-end in conference with his opposite numbers from the central banks of other western industrial countries.

The object of the Bank's management in the monetary field is to support the Government's activities in other fields, e.g. taxation policy, export promotion and so on. The methods of control used by the Bank are based on a system in which money available to be borrowed should be rationed by price, not by orders from the Bank or The Treasury.

The battery of instruments of control the Bank has may (>e summarized as follows:

1. Suggestion and request.From lime to lime the Bank
will make suggestions to the olher institutions in the City,
indicating the policy the authorities intend to pursue. If they
want specific aclion, the Government makes a "request" like
the following:

"Notice to banks.

All banks and finance houses are asked not to provide ei­ther loans to persons or check trading facilities for the pur­chase of..."

2. Open market operations.This is the name given to the
activities of the Bank in the financial markets for control pur-

poses. The point is thai by its interventions the Bank can influence markets to move in the directions which it desires. 3. Special deposits and supplementary deposits.From lime to lime, the Government may wish to reduce the amount ol'money lhal people can borrow in order lo reduce Ihe amount they spend. An effective way of doing this is 10 reduce what the banks have available for lending, and this is done by re­quiring them to deposit more money at the Bank of England in special accounts from which it cannol be withdrawn unlil the Bank says so.

Questions on the text:

1. Why and when was the Bank of England founded?

2. What type of securities make up the National Debl?

3. What is the money raised in Ihis way spcnl on?

4. Enumerate the most important functions of the Bank of
England.

5. What is the object of a central bank's managemenl in Ihe

monelary field?

b'. Whal principle does Ihe Bank of England follow in exer­cising its control over the monetary policy?

7. What instruments of control has Ihe Bank got al ils dis­posal ?

Vocabulary Exercises

¹ • ^

Find Ihe names of banking and financial inslilutious men-Honed in the dialogue and Ihe lexl and match Ihem ivilh Ihe definitions given in the exercise

1. A bank whose major services are accepting and prolecling
money for deposit and paying cheques issued by the deposi­
tors, laws permit lo invest for profit a portion of Ihis money.

2. A bank which has a charier from the federal government.
•1 A bank which has a charier from a slale government

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4. A bank established by the government of the USA to make
loans for the purchase of land.

5. An institution which handles brokerage.

6. A place where stocks arc bought and sold.

7. An institution formed by a group of persons who combine
their savings in order to make loans to members at a low
rale of interest.

8. A lending institution without a bank charter which spe­
cializes in making small loans on open note or secured by
chattel mortgage.

9. An institution which accepts savings deposits and makes
loans mainly for the purchase and repair of homes.

10.An institution which manages trusts and services.

11. A banker's bank and lender of last resort.

II

Using the words in brackets as a guide, explain the mean­ing of the following terms:

1. fiduciary services (trusts, estates, management, having to
do with)

2. securities (units of fixed obligation, a company, govern­
ment, fixed term, slocks)

3. broker (stocks and bonds, for others, sells, buys)

4. charter (to carry on, give permission, an official paper)

5. lending instilulion (to make loans, empowered)

6. The Treasury (governmenl, deparlmenl, Brilish, national
economic policy, public expenditure, control, coordinale)

HI

Say what is true and what is false. Correct the false sen­tences:

1. Commercial bank's services are limited.

2. Fiduciary services are handled by trusl companies.

3. Commercial banks don'I deal with brokerage services!

4. American stale banks offer fewer services than a national

bank.

5. The interesl on deposils is usually higher in savings and

loan associalions.

6. Savings and loan associations offer regular commercial ser­
vices.

7. Every English bank issues its own notes. ^J

8. All the important institutions in the City maintain accounts
al the Bank of England.

9. The amounl of money available for British borrowers de­
pends on The Treasury orders.

IV

Study the following example: We employ people. A person who employs is an employer. A person who is employed is an employee. The suffix -er is generally used for a person who docs the action. The suffix -ее is generally used for a person to whom something is done. It has passive meaning.

Complete the. following:

1. We remit money orders.

A person who remits is a....

A person to whom the money order is rernitled is a

2. We transfer bank drafts................... j
A person who transfers them is a....

A person lo whom Ihey are transferred is a...

3. You draw out a cheque.

A person who draws a cheque is a...

The bank on which the cheque is drawn is a...

A person to whom the cheque is made payable is a

4. One can pledge assets as security.

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A person who pledges assets as security is a
A person to whom assets are pledged is a..

5. Loans are granted.

A person who grants a loan is a....

A person to whom a loan is granted is a...

6. A person to whom one's affairs are trusted is a

VI

Using prefixes il-,im-, in-, ir-, un-, поп-,etc., give nega­
tive adjectives which are related to the following:
expensive negotiable regular

important orderly spieificd

legal payable stable

matured proper sufficient

movable profitable transferable

VII

Combine the words listed below into meaningful two or three word expressions as possible:

account	credit	revenue
association	company	savings
bank	exchange	slate
benefit	equalization	slock
bond	finance	trust
business	government	transaction
brokerage	house	union
board	loan	employment
central	land
charter	premium

VIH

For each of the. following phrases, find the. expression in llie text that explains it: \, restricted range of services

2. services having to do with Irusls and estates

3. services having to do with buying and selling securities

4. bank which gels its charter from Ihe slate >
~5. slocks and bonds

6, a place where slocks arc bought and sold

7, Ihe fund in which Ihe gold aucl foreign currency reserves of
Greal Britain are held

8. bonds with a very short life span before Ihe government
buys them back again

9. economic policy which regulales the level of money or li­
quidity

IX

Fill in the blanks:

In every capilal city Ihcre are numerous institutions which

make loans. There are numerous.... institutions. One can

also borrow money from the..... though their major func-

lion is accepting deposits. People who need a loan for the pur­
chase of land can apply for il lo a.. If you need to borrow

money for the purchase or repair of your house or just make
saving deposits you can call al a.... Many individual com­
panies run.... which are formed by combining savings of the

people working there. They make loans lo their members al a

low....... Anyone having problems with Irusls/or estates can

seek advice al a.......... They deal with..... mailers. People

interested in the purchase of slocks or shares usually go lo a
.... which specializes in handling.....

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Active Vocabulary allowance assign (v) beneficiary benefit bid (v) (bade, bidden) claim collect (v) common slocks commission corporate bond (US) coupon counsel (v) (US) creditor cover

Demonstrate the meaning of the following expressions № sentences of your own:

1. to handle transactions

2. to be a party to a transaction

3. to manage the estate

4. to make loans for the purchase of

5. to borrow money from

6. to get a loan from

7. to charge a higher/lower rale of interest

8. to discuss some fiduciary matters

9. to provide the government with

10. to cover the gap between

11. to maintain an orderly market

12. to be the subject to scrutiny by

Unit Seven