24. The banking industry

Lead-in:

1. to earn profit – заробляти прибуток

2. to pay and to charge interest rates – сплачувати i стягувати (нараховувати) відсотки

3. lenders and borrowers – кредитори і позичники

4. takeovers and mergers – злиття та поглинання підприємств

5. Government bonds – урядові облігації, державні цінні папери

6. Annual General Meeting – щорічні загальні збори

7. mortgage loan – заставна позика

8. fluctuate – коливатися, хитатися

9. insurance services – страхове обслуговування

Banks are one of the most important financial institutions. The first and most important function of a central bank is to accept responsibility for advising the government on the country’s financial policy.

There are two types of banks: commercial banks and investment banks – or merchant banks as they are called in Great Britain. The aim of commercial banks is to earn profit; they make a profit from the difference between the interest rates they pay to lenders and those they charge to borrowers.

Commercial banks deal mainly with individual customers, e.g. private citizens, small businesses. They receive and hold deposits, pay money according to customer’s instructions, lend money, exchange foreign currencies, give credit, and so on.

Investment banks – or merchant banks – raise funds for industry on the various financial markets, finance international trade, deal with takeovers and mergers, issue government bonds. Investment banks make profits from fees and commissions they charge for their services.

Banks are usually organized to follow their functions and supply the services as efficiently as possible.

The English commercial banks have branches in all the major towns and have a similar structure. Their owners are shareholders, they provide the necessary capital. They are all organized on the joint stock principle and are registered public companies. The Chairman and Board of Directors are elected by the ordinary shareholders at the Annual General Meeting and responsible for the efficient management of the bank. The Board will appoint a Managing Director and senior executives who will be responsible for the running of the bank.

At the end of each business year the Directors recommend and the Annual General Meeting decides how much of the profit should be distributed by the shareholders as a dividend, and how much should be retained in the business. Preparing for the Annual General Meeting, a bank publishes its Report and Accounts. These must be sent to every shareholder and are available for anyone with an interest in the affairs of the bank.

In recent times the difference between commercial and investment banks has been slowly disappearing as the so-called “financial supermarkets” replace them. These are a combination of a commercial bank, an investment bank, and an insurance company, offering the full range of financial services.

Whether depositing or borrowing money, a customer is most interested in the bank’s interest rate. The minimum interest rate is usually determined by the central bank, and the interest rates offered by other banks sometimes fluctuate.

There has been an explosion of new service options in banking recently. Trust services are one of the most important and rapidly growing bank service areas today.Apart from that banks introduce such services as cash management services, mortgage loans, investment services, insurance services, etc.

Questions for comprehension check-up and discussion:

1. What is the most important function of a central bank?

2. Name two types of banks.

3. What do commercial banks deal with?

4. What functions do investment banks perform?

5. How is the Board of Directors elected in English commercial banks?

6. What questions are discussed at the Annual General Meeting?

7. What is a ‘financial supermarket’ and what services does it provide?

8. Can you name new service options in the sphere of banking?