Unit 3: Banking Industry

1. Financial English Unit 3: Banking Industry

2. Unit 3: • Revision of Unit 2 • Overview of Unit 3 • Background information of Unit 3 • Text • Exercises • Assignment

3. Revision of Unit 2 • Review of Unit 2 • Exercises Check-up Question & Answer Sentence Translation

4. Question &Answer 1. What are the main advantages financial intermediaries can provide? 2. What are the main reasons some economists concerned that financial intermediaries can be a source of shocks to the economy? Check-up

5. Question and Answer • 3. What are the three characteristics that most people want to have in their assets when we look at financial assets? • What is an asset? • 5. What is the “greater-fool” theory? Check-up

6. Question and Answer • Key to the questions: • Less risky, and liquidity. • First, bank debt serves as money, so disruptions to banks can affect the amount of money in circulation. Second, financial intermediaries are tied together through chains of debts and assets.

7. Question and Answer • 3. Low risk, liquid and a high rate of return. • An asset is what one owns. • Assets=Net Worth + Liabilities • Trading in financial markets involves not only an analysis of the fundamental value of an asset, but also an analysis of how other people will react. If people are confident that others will buy the item for more than they paid for it, then they will buy it even if it has little value to them .

8. Sentence Translation Translate the following sentences orally 1. Speculation typically involves the lending of money or the purchase of assets, equity or debt but in a manner that has not been given thorough analysis or is deemed to have low margin of safety or a significant risk of the loss of the principal investment. Check-up

9. Sentence Translation 2. In a financial context, the terms "speculation" and "investment" are actually quite specific. For instance, although the word "investment" is typically used, in a general sense, to mean any act of placing money in a financial vehicle with the intent of producing returns over a period of time, most ventured money—including funds placed in world's stock markets—is actually not investment, but speculation. Check-up

10. Sentence Translation 3. Financial speculation can involve the buying, holding, selling, and short-selling of stocks, bonds, commodities, currencies, collectibles, real estate, derivatives, or any valuable financial instrument to profit from fluctuations in its price, irrespective of its underlying value. Check-up

11. Sentence Translation—Suggested Answers • 1. 最典型的投机行为包括借钱或者购买资产，资产净值或者负债，但是上述行为并非基于彻底分析的基础之上，或者被认为安全系数低或者损失本金的风险大。

12. Sentence Translation—Suggested Answers 2. 在金融领域中，“投机”和“投资”这两个术语事实上是很特殊的。举个例子来讲，尽管“投资”这个单词普遍被人们用来描述任何把货币投到一种金融工具，以期望在一段时间后获得收益的行为。风险更大的货币行为—包括投资到世界股市的资金--事实上不是一种投资，而是投机行为。

13. Sentence Translation—Suggested Answers 3. 金融投机行为包括不管基本价值而购买、持有、 售出、卖空股票、债券、商品、货币、收藏品、 房地产、金融衍生品或者任何有价值的金融工 具，以期望通过其价格波动获得利润。

14. Overview of Unit 3 • 本章旨在追溯银行业的起源，介绍不同的银行种类以及银行的业务渠道以及各项职能。通过学习本文，应对银行业有总体了解，并着重了解银行的分类以及主要的银行职能。 • 本章重点难点 • 银行业起源 • 银行的分类 • 银行的主要业务渠道 • 银行的经济作用

15. Overview of Unit 3

16. Background Information 美国联邦储备系统(Federal Reserve System，简称Fed)负责履行美国的中央银行的职责，这个系统是根据《联邦储备法》(Federal Reserve Act)于1913年成立的。这个系统主要由联邦储备委员会，联邦储备银行及联邦公开市场委员会等组成。

17. Background Information 美联储主要职责： 1、制定并负责实施有关的货币政策； 2、对银行机构实行监管，并保护消费者合法的信贷权利； 3、维持金融系统的稳定； 4、向美国政府，公众，金融机构，外国机构等提供可靠的金融服务。 美联储其它职责： 1、 经济教育 2、 社会超越 3、 经济研究

18. Background Information 大萧条（The Great Depression）是指1929年至1933年之间全球性的经济大衰退。大萧条的影响比历史上任何一次经济衰退都要来得深远。

19. Background Information 大萧条的普遍影响导致了： 1、提高了政府对经济的政策参与性，即凯恩斯主义； 2、以关税的形式强化了经济的民族主义； 3、激起了作为共产主义替代物的浪漫-极权主义政治运动（如德国纳粹）。大萧条相对于其他单一原因来说是最能够解释为什么在1932年到1938年之间欧洲大陆和拉丁美洲各国政治逐渐右翼化。 4、阿道夫·希特勒、贝尼托·墨索里尼等独裁者的崛起，间接造成第二次世界大战爆发。

20. Background Information 回教银行（Islamic Bank）是遵循回教法律(Shariah)和原则，及回教经济指导方针的银行业务系统。 严禁“riba”(征收和缴付利息)，高利贷，经营具有金融风险和不合法 (haram) 的商业活动， 回教银行如今已在全球银行业的局势里成为一股日渐增长的趋势

21. Unit 3: • Part I: 3.1 Introduction to Banking Industry • Part II: 3.2 Types of Banks • Part III:3.3 Banks Channels • Part IV : 3.4 Banks in the Economy

22. Text : Banking Industry 3.1 Introduction to Banking Industry Banks have influenced economies and politics for centuries. Historically, the primary purpose of a bank was to provide loans to trading companies. Banks provided funds to allow businesses to purchase inventory, and collected those funds back with interest when the goods were sold. For centuries, the banking industry only dealt with businesses, not consumers. Banking services have expanded to include services directed at individuals, and risk in these much smaller transactions are pooled.

23. Text : The name bank derives from the Italian word banco which means "desk/bench", used during the Renaissance by Florentine bankers, who used to make their transactions above a desk covered by a green tablecloth.

24. Text : A bank is a financial institution where you can deposit your money. Banks provide a system for easily transferring money from one person or business to another. Using banks and the many services they offer saves us an incredible amount of time, and ensures that our funds "pass hands" in a legal and structured manner. There are also other types of financial institutions that operate just like banks.

25. Text : • A banker is defined as a person who carries on the business of banking, which is specified as: • conducting current accounts for his customers • paying cheques drawn on him, and collecting cheques for his customers.

26. Text : • HOW BANKS OPERATES • In addition to providing a safe place for your money, banks also loan money to businesses and consumers. A large portion of a bank's business is lending. How do banks get the money they loan? The money comes from depositors like you. Banks use these deposits to make loans. Every fee you pay to your bank enables them to reinvest in themselves, giving them more money to loan to you, for another fee, of course.

27. Text : Banks are in business to make a profit. Their profit generally comes from the difference in interest paid to depositors and the interest earned on loans. Making loans helps banks make money, and offering checking accounts is a way to attract deposits, which banks turn into profitable loans.

28. Text : Banks cannot legally loan all of their deposited money all at once. The Federal Reserve Board, which is part of the Federal Reserve System, requires that banks must keep a certain percentage of their deposits in reserve at all times, assuring you, the customer, can withdraw your money when you need to. The remaining funds, which are not subject to reserve, are used to make consumer loans.

29. Text : 3.2 Types of Banks Banks' activities can be divided into retail banking, dealing directly with individuals and small businesses; business banking, providing services to mid-market business; corporate banking, directed at large business entities; private banking, providing wealth management services to high net worth individuals and families; and investment banking, relating to activities on the financial markets. Most banks are profit-making, private enterprises. However, some are owned by government, or are non-profit organizations.

30. Text : Central banks are normally government-owned and charged with quasi-regulatory responsibilities, such as supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity to the banking system and act as the lender of last resort in event of a crisis.

31. Text : • TYPES OF RETAIL BANKS • Commercial banks: the term used for a normal bank to distinguish it from an investment bank. After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital market activities. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses.

32. Text : Community Banks: locally operated financial institutions that empower employees to make local decisions to serve their customers and the partners. Community development banks: regulated banks that provide financial services and credit to under-served markets or populations. Postal savings banks: savings banks associated with national postal systems.

33. Text : Private banks: banks that manage the assets of high net worth individuals. Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks.

34. Text : Savings bank: in Europe, savings banks take their roots in the 19th or sometimes even 18th century. Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative; in others, socially committed individuals created foundations to put in place the necessary infrastructure. Nowadays, European savings banks have kept their focus on retail banking: payments, savings products, credits and insurances for individuals or small and medium-sized enterprises. Apart from this retail focus, they also differ from commercial banks by their broadly decentralised distribution network, providing local and regional outreach—and by their socially responsible approach to business and society.

35. Text : Building societies and Landesbanks: institutions that conduct retail banking. Ethical banks: banks that prioritize the transparency of all operations and make only what they consider to be socially-responsible investments. Islamic banks: Banks that transact according to Islamic principles.

36. Text : • TYPES OF INVESTMENT BANKS • Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their own accounts, make markets, and advise corporations on capital market activities such as mergers and acquisitions. • Merchant banks were traditionally banks which engaged in trade finance. The modern definition, however, refers to banks which provide capital to firms in the form of shares rather than loans. Unlike venture capital firms, they tend not to invest in new companies.

37. Text : • BOTH COMBINED • Universal banks, more commonly known as financial services companies, engage in several of these activities. For example, Citigroup is a large American bank involved in commercial and retail lending, with subsidiaries in tax havens offering offshore banking services to customers in other countries. Other large financial institutions are similarly diversified and engage in multiple activities. In Europe and Asia, big banks are very diversified groups that, among other services, also distribute insurance—hence the term bancassurance, a portmanteau word combining "banque or bank" and "assurance", signifying that both banking and insurance are provided by the same corporate entity.

38. Text : • OTHER TYPES OF BANKS • Islamic banks adhere to the concepts of Islamic law. Islamic banking revolves around several well established concepts which are based on Islamic canons. Since the concept of interest is forbidden in Islam, all banking activities must avoid interest. Instead of interest, the bank earns profit (mark-up) and fees on financing facilities that it extends to the customers. Also, deposit makers earn a share of the bank’s profit as opposed to a predetermined interest.

39. Text : 3.3 Banks Channels Banks offer many different channels to access their banking and other services: A branch, banking centre or financial centre is a retail location where a bank or financial institution offers a wide array of face-to-face service to its customers.

40. Text : ATM is a computerised telecommunications device that provides a financial institution's customers a method of financial transactions in a public space without the need for a human clerk or bank teller. Most banks now have more ATMs than branches, and ATMs are providing a wider range of services to a wider range of users. For example in Hong Kong, most ATMs enable anyone to deposit cash to any customer of the bank's account by feeding in the notes and entering the account number to be credited. Also, most ATMs enable card holders from other banks to get their account balance and withdraw cash, even if the card is issued by a foreign bank.

41. Text : Mail is part of the postal system which itself is a system wherein written documents typically enclosed in envelopes, and also small packages containing other matter, are delivered to destinations around the world. This can be used to deposit cheques and to send orders to the bank to pay money to third parties. Banks also normally use mail to deliver periodic account statements to customers.

42. Text : Telephone banking is a service provided by a financial institution which allows its customers to perform transactions over the telephone. This normally includes bill payments for bills from major billers (e.g. for electricity). Online banking is a term used for performing transactions, payments etc. over the Internet through a bank, credit union or building society's secure website. E-banking is the very popular in the world.

43. Text : • 3.4 Banks in the Economy • ECONOMIC FUNCTIONS • The economic functions of banks include: issue of money, netting and settlement of payments, credit intermediation, credit quality improvement and maturity transformation.

44. Text : • Issue of money—In the form of banknotes and current accounts subject to cheque or payment at the customer's order. These claims on banks can act as money because they are negotiable and/or repayable on demand, and hence valued at par. They are effectively transferable by mere delivery, in the case of banknotes, or by drawing a cheque that the payee may bank or cash.

45. Text : • Netting and settlement of payments—banks act as both collection and paying agents for customers, participating in interbank clearing and settlement systems to collect, present, be presented with, and pay payment instruments. This enables banks to economise on reserves held for settlement of payments, since inward and outward payments offset each other. It also enables the offsetting of payment flows between geographical areas, reducing the cost of settlement between them.

46. Text : • Credit intermediation—banks borrow and lend back-to-back on their own account as middle men. • Credit quality improvement—banks lend money to ordinary commercial and personal borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of the bank's assets and capital which provides a buffer to absorb losses without defaulting on its obligations. However, banknotes and deposits are generally unsecured; if the bank gets into difficulty and pledges assets as security, to raise the funding it needs to continue to operate, this puts the note holders and depositors in an economically subordinated position.

47. Text : • Maturity transformation—banks borrow more on demand debt and short term debt, but provide more long term loans. In other words, they borrow short and lend long. With a stronger credit quality than most other borrowers, banks can do this by aggregating issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and redemptions of banknotes), maintaining reserves of cash, investing in marketable securities that can be readily converted to cash if needed, and raising replacement funding as needed from various sources (e.g. wholesale cash markets and securities markets).

48. Text : • BANK CRISIS • Banks are susceptible to many forms of risk which have triggered occasional systemic crises. These include liquidity risk (where many depositors may request withdrawals beyond available funds), credit risk (the chance that those who owe money to the bank will not repay it), and interest rate risk (the possibility that the bank will become unprofitable, if rising interest rates force it to pay relatively more on its deposits than it receives on its loans).

49. Text : Banking crises have developed many times throughout history, when one or more risks have materialized for a banking sector as a whole. Prominent examples include the bank run that occurred during the Great Depression, the U.S. Savings and Loan crisis in the 1980s and early 1990s, the Japanese banking crisis during the 1990s, and the subprime mortgage crisis in the 2000s.

50. Text : Language Points entity n. something that exists as a particular and discrete unit经济实体 eg. combined into a single entity联合的联合成一个整体的