Chapter 1

Peter S. Rose

Importance of Banking
Most important financial institution of the
economy.
Principal source of credit (loanable funds).
Mode of payments for purchase of goods
and services.
Advice and counsel for financial
information/ planning.
Bank reserves are the principal channel for
government economic policy to stabilize
the economy.

What is a bank?
Banks can be identified by the products/ services
they offer.
Not only are the banks functions changing but the
functions of their competitors are also changing.
Deposits should be insured by Federal Deposit
Insurance Corporation
banks are those financial institutions that offer the
widest range of financial services-especially credit,
savings and payment services-and perform the
widest range of financial functions of any business
firm in the economy.

Vital functions of a modern

Bank
Cash management function
Investment banking/underwriting
function
The brokerage function
The insurance function
The investment planning function
The payments function
The saving function

Services banks have offered in

history

Carrying out currency exchanges

Making business loans
Offering saving deposits
Safekeeping of valuables
Support govt activities with credit
Offering demand deposit

Services banks have developed

recently

Granting consumer loans

Financial advising
Cash management
Offering equipment leasing
Making venture capital loans
Selling insurance services
Selling retirement plans
Offering brokerage investments services
Offering mutual funds
Offering investment banking and merchant
banking services (also offer hedging services)

Services banks have developed

recently

Granting consumer loans

Financial advising
Cash management
Offering equipment leasing
Making venture capital loans
Selling insurance services
Selling retirement plans
Offering brokerage investments services
Offering mutual funds
Offering investment banking
(also offer hedging services)

PE and VC is the Investment in

Privately held cos as compared to
publicly held cos in stock exchanges
Private Equity
Giving equity to already
established company
Proven concepts, growth
of the company/idea
may not be very rapid
2* return over years
Leverage involved

Venture Capital
Giving equity to a brand
new idea-may just be
starting up, hence- more
risky
Looking for Rapid growth
10 times of our money in
few years with fair amount
of risk
Pure equity

Trends affecting all banks

Service proliferation
Rising competition
Deregulations
Rising funding costs
Technological revolution
Geographical expansion
Globalization of banking