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“The bank is not as black as it is painted – how to read financial documents”

Bank

Contents

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THE BANK – an institution that acts as a financial intermediary.

Types of banks:

  • Retail banks – banks that offer loans and credit cards. Cheque accounts and savings accounts are maintained in a retail bank. These banks focuses on consumers.
  • Commercial banks – the bank is addressed to business customers. Otherwise, business or corporate banks. They focus on managing payments to customers, provide credit lines to manage cash flows, and offer foreign exchange services for companies operating abroad.
  • Investment banks – help companies to raise capital in the financial markets. They also provide advice to corporations on mergers and acquisitions.
  • Private banks – Targeted at rich customers. They help them manage their assets and provide tax advice.
  • Central banks – they manage the government monetary system. They are responsible for overseeing other banks and setting monetary policy to control inflation, reduce unemployment and ensure moderate interest rates.
  • Credit unions – these are non-profit organisations owned by their clients. They’re similar to banks. They offer products and services similar to those offered by retail banks. Members of credit unions share a common feature, for example: residence, profession.
  • Online banks – Their functioning is entirely based on online activities. There are no physical branches. They often offer competitive rates on savings accounts. Many banks also offer online services, but the customer has the opportunity to go to a branch.
  • Mutual banks – are similar to credit unions. They are also owned by members. They are usually only active in one community.
  • Savings and loans – are less common than before. This type of bank uses savings deposits from customers to finance housing loans.

There are two key functions of the bank:

  • brokerage,
  • providing liquidity.

Thus, banks are used to take deposits and grant loans.

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Nowadays, banks are introducing more and more diverse services to gain new customers.

Bank services:

  • An online banking (e-banking) – It allows you to access and manage your bank account via the Internet. You don’t have to go out and go to the bank to pay your bills. Just log in to your bank account and make a transfer. You are able to perform all basic transactions, you can check your balance, you have access to your transaction history at any time 24 hours a day (without any restrictions – if you are connected online).
  • A mobile banking (m-banking) – Banks are increasingly offering mobile applications that enable them to make transactions and manage a bank account using a mobile phone or Personal Digital Assistant (PDA).
  • Different payment methods:
  • A transfer – It is transfer money from your account into another account by different ways: online bank transfer by using a computer, but some banks also offer smartphone apps, telephone transfer (call your bank’s telephone banking service and then the bank’s customer services representative will guide you through the process), in-branch bank transfer (this is a good solution if you have money in cash and want to transfer it to some account). Transfers of money between the countries are also possible – and common, utilising banking networks like e.g. SWIFT (Society for Worldwide Interbank Financial Telecommunication) – which provide financial institutions worldwide with a standardized and secure environment about funds transfers. International transfers require additional account identifiers, and those can be:
    • BIC – Business Identifier Code (mostly outdated),
    • SWIFT code
    • IBAN – International Bank Account Number
  • A standing order – This is somewhat simpler version of direct debit. You can order your bank to send money in intervals to some specific account, which can be useful for paying recurring bills which are always of the same amount. This operation is available in pretty much all the banks.
  • A check – Account holders can draw cheque upon the bank to pay money. Then, after formal verification, the bank pays for the customer’s checks following the accepted procedures.
  • A debit card – known as bank card or sometimes check card, is a standard payment card used instead of cash during purchases. In Europe, majority of banks issues debit card when opening an account, often without extra charges. Pretty much all debit cards are equipped with EMV chip secured by a PIN number, very often contactless payments are also available.
  • [A credit card] – It is essentially a payment card, looks like any typical card, but with one distinct change – when making purchase, you bank account is not charged, but rather the assigned credit line is used.
  • A currency exchange – Banks offer the possibility to exchange foreign currencies into local currencies.
  • ATMs Services – Cash withdrawal is possible via ATMs (Automated Teller Machine), called also cashpoint, bancomat, cash dispenser and many more. They are available 24 hours a day. Typical operations possible with ATM include cash withdrawal, checking the balance, sometimes money transfers and deposit. Card operations require PIN number, which if provided incorrectly 3 times or more, could result in card being locked in the ATM.
  • Remittance of Funds – It is possible to move money from one place to another, using various forms: cheques, transfers, etc.
  • A loan – Banks grant loans (short -; medium – and long-term), after keeping certain cash reserves.
  • [A credit] – The bank may lend the borrower a certain amount of money for a specific purpose and time. However, later on, the borrower has to return this amount together with the commission and interest due to the bank.
  • An overdraft – It is a kind of credit in your current account. Sometimes the bank allows the customer to withdraw more than the deposit. Often it is a certain amount. The bank calculates interest on the amount paid out.
  • A bank guarantee – This is a form of financial support by the bank. When customers need to deposit a certain fund, the bank can present itself as a customer guarantee. After fulfilling the requirements specified by the beneficiary, the bank pays out the funds.
  • A consultancy – Modern commercial banks often extend their function to advisory activities. They employ financial, legal and market experts who can advise clients on investment, industry, trade, income, taxes, etc.