Banking Grp 7

8/18/2019 Banking Grp 7

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Banking in India- history

Banking in India in the modern sense originated in the last decades of the 18th

century. The largest bank, and the oldest still in existence, is the State Bank of

India, which originated in the Bank of Calcutta in une 18!", which almost

immediately became the Bank of Bengal. This was one of the three #residency

banks, the other two being the Bank of Bombay and the Bank of $adras, all three

of which were established under charters from the British %ast India Com#any. The

three banks merged in 1&'1 to form the Im#erial Bank of India, which, u#on

India(s inde#endence, became the State Bank of India in 1&)). *or many years the #residency banks acted as +uasicentral banks, as did their successors, until the

-esere Bank of India was established in 1&/).

In 1&"& the Indian goernment nationali0ed all the maor banks that it did not

already own and these hae remained under goernment ownershi#. They are run

under a structure known as (#rofitmaking #ublic sector undertaking( 23S45 and are

allowed to com#ete and o#erate as commercial banks. The Indian banking sector is

made u# of four ty#es of banks, as well as the 3S4s and the state banks, they hae

been oined since the 1&&!s by new #riate commercial banks and a number of

foreign banks.

6enerally banking in India was fairly mature in terms of su##ly, #roduct range and

reacheen though reach in rural India and to the #oor still remains a challenge.

The goernment has deelo#ed initiaties to address this through the State Bank of

India ex#anding its branch network and through the 7ational Bank for gricultureand -ural 9eelo#ment with things like microfinance.

http://en.wikipedia.org/wiki/Nationalisedhttp://en.wikipedia.org/wiki/Government-owned_corporation#Indiahttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/National_Bank_for_Agriculture_and_Rural_Developmenthttp://en.wikipedia.org/wiki/National_Bank_for_Agriculture_and_Rural_Developmenthttp://en.wikipedia.org/wiki/Microfinancehttp://en.wikipedia.org/wiki/Government-owned_corporation#Indiahttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/National_Bank_for_Agriculture_and_Rural_Developmenthttp://en.wikipedia.org/wiki/National_Bank_for_Agriculture_and_Rural_Developmenthttp://en.wikipedia.org/wiki/Microfinancehttp://en.wikipedia.org/wiki/Nationalised


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Colonial era

9uring the #eriod of British rule merchants established the 4nion Bank of Calcuttain 18'&, first as a #riate oint stock association, then #artnershi#. Its #ro#rietors

were the owners of the earlier Commercial Bank and the Calcutta Bank, who by

mutual consent created 4nion Bank to re#lace these two banks. In 18:! it

established an agency at Singa#ore, and closed the one at $ir0a#ore that it had

o#ened in the #reious year. lso in 18:! the Bank reealed that it had been the

subect of a fraud by the bank(s accountant. 4nion Bank was incor#orated in 18:)

but failed in 18:8, haing been insolent for some time and haing used new

money from de#ositors to #ay its diidends.

The llahabad Bank , established in 18") and still functioning today, is the oldest

oint Stock bank in India, it was not the first though. That honour belongs to the

Bank of 4##er India, which was established in 18"/, and which suried until

1&1/, when it failed, with some of its assets and liabilities being transferred to the

lliance Bank of Simla.

*oreign banks too started to a##ear, #articularly in Calcutta, in the 18"!s. The

Com#toird(%scom#te de 3aris o#ened a branch in Calcutta in 18"!, and another inBombay in 18"'; branches in $adras and 3ondicherry, then a *rench #ossession,

followed.


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1&:8 enisaged a mixed economy. This resulted into greater inolement of the

state in different segments of the economy including banking and finance. The

maor ste#s to regulate banking included@

• The -esere Bank of India, India(s central banking authority, wasestablished in #ril 1&/), but was nationalised on 1 anuary 1&:& under the

terms of the -esere Bank of India 2Transfer to 3ublic Awnershi#5 ct,

1&:8 2-BI, '!!)b5.

• In 1&:&, the Banking -egulation ct was enacted which em#owered the

-esere Bank of India 2-BI5 to regulate, control, and ins#ect the banks in

India.

Nationalization in the 1960s

9es#ite the #roisions, control and regulations of the -esere Bank of India, banks

in India exce#t the State Bank of India 2SBI5, continued to be owned and o#erated

by #riate #ersons. By the 1&"!s, the Indian banking industry had become an

im#ortant tool to facilitate the deelo#ment of the Indian economy. t the same

time, it had emerged as a large em#loyer, and a debate had ensued about the

nationali0ation of the banking industry. Indira 6andhi, the then 3rime $inister of

India, ex#ressed the intention of the 6oernment of India in the annual conference

of the ll India Congress $eeting in a #a#er entitled " Stray thoughts on Bank

7ationali0ation.The meeting receied the #a#er with enthusiasm.

Thereafter, her moe was swift and sudden. The 6oernment of India issued an

ordinance 2(Banking Com#anies 2c+uisition and Transfer of 4ndertakings5

Ardinance, 1&"&(5 and nationalised the 1: largest commercial banks with effect

from the midnight of 1& uly 1&"&. These banks contained 8) #ercent of bank

de#osits in the country. aya#rakash 7arayan, a national leader of India, describedthe ste# as a " masterstroke of #olitical sagacity." >ithin two weeks of the issue of

the ordinance, the 3arliament #assed the Banking Com#anies 2c+uisition and

Transfer of 4ndertaking5 Bill, and it receied the #residential a##roal on & ugust

1&"&.

http://en.wikipedia.org/wiki/Mixed_economyhttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Indian_economyhttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Nationalizationhttp://en.wikipedia.org/wiki/Jayaprakash_Narayanhttp://en.wikipedia.org/wiki/Parliament_of_Indiahttp://en.wikipedia.org/wiki/President_of_Indiahttp://en.wikipedia.org/wiki/Mixed_economyhttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Indian_economyhttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Nationalizationhttp://en.wikipedia.org/wiki/Jayaprakash_Narayanhttp://en.wikipedia.org/wiki/Parliament_of_Indiahttp://en.wikipedia.org/wiki/President_of_India


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second dose of nationalisation of " more commercial banks followed in 1&8!.

The stated reason for the nationalisation was to gie the goernment more control

of credit deliery. >ith the second dose of nationalisation, the 6oernment of India

controlled around &1 of the banking business of India. ?ater on, in the year 1&&/,

the goernment merged 7ew Bank of India with 3unab 7ational Bank .D8E It wasthe only merger between nationalised banks and resulted in the reduction of the

number of nationalised banks from '! to 1&. fter this, until the 1&&!s, the

nationalised banks grew at a #ace of around :, closer to the aerage growth rate

of the Indian economy.

Liberalization in the 1990s

In the early 1&&!s, the then goernment embarked on a #olicy of liberali0ation,

licensing a small number of #riate banks. These came to be known as New

Generation tech-savvy banks, and included 6lobal Trust Bank 2the first of such

new generation banks to be set u#5, which later amalgamated with Ariental Bank

of Commerce, 4TI Bank 2since renamed xis Bank 5, ICICI Bank and


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Current period

ll banks which are included in the Second Schedule to the -esere Bank of Indiact, 1&/: are Scheduled Banks. These banks com#rise Scheduled Commercial

Banks and Scheduled Coo#eratie Banks. Scheduled Commercial Banks in India

are categorised into fie different grou#s according to their ownershi# andGor

nature of o#eration. These bank grou#s are@

• State Bank of India and its ssociates

• 7ationalised Banks

• 3riate Sector Banks

• *oreign Banks

• -egional -ural Banks.

In the bank grou#wise classification, I9BI Bank ?td. is included in 7ationalised

Banks. Scheduled Coo#eratie Banks consist of Scheduled State Coo#eratie

Banks and Scheduled 4rban Coo#eratie Banks.

doption o! banking technology

The eolution has had a great im#act on the Indian banking system. The use of

com#uters has led to the introduction of online banking in India. The use of

com#uters in the banking sector in India has increased many fold after the

economic liberalisation of 1&&1 as the country(s banking sector has been ex#osed

to the world(s market. Indian banks were finding it difficult to com#ete with the

international banks in terms of customer serice, without the use of information

technology.

The -BI set u# a number of committees to define and coordinate banking

technology. These hae included@

http://en.wikipedia.org/wiki/Online_bankinghttp://en.wikipedia.org/wiki/Online_banking


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• In 1&8: was formed the Committee on $echanisation in the Banking

Industry 21&8:5D1/E whose chairman was 9r. C -angaraan, 9e#uty 6oernor,

-esere Bank of India. The maor recommendations of this committee were

introducing $IC- technology in all the banks in the metro#olises in India.D1:E

This #roided for the use of standardi0ed che+ue forms and encoders.

• In 1&88, the -BI set u# the Committee on Com#uterisation in Banks 21&885D1)E headed by 9r. C -angaraan. It em#hasi0ed that settlement o#eration

must be com#uteri0ed in the clearing houses of -BI in Bhubaneshwar ,

6uwahati, ai#ur , 3atna and Thiruanantha#uram. It further stated that there

should be 7ational Clearing of intercity che+ues at Holkata, $umbai,

9elhi, Chennai and $IC- should be made o#erational. It also focused on

com#uterisation of branches and increasing connectiityD1"E

• In 1&&:, the Committee on Technology Issues relating to 3ayment systems,

Che+ue Clearing and Securities Settlement in the Banking Industry 21&&:5D1=E

was set u# under Chairman > S Saraf. It em#hasi0ed %lectronic *unds

Transfer 2%*T5 system, with the B7H7%T communications network as its

carrier. It also said that $IC- clearing should be set u# in all branches of all

those banks with more than 1!! branches.

• In 1&&), the Committee for #ro#osing ?egislation on %lectronic *unds

Transfer and other %lectronic 3ayments 21&&)5D18E again em#hasi0ed %*T

system.D1"E

http://en.wikipedia.org/wiki/Banking_in_India#cite_note-13http://en.wikipedia.org/wiki/MICRhttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-14http://en.wikipedia.org/wiki/Banking_in_India#cite_note-15http://en.wikipedia.org/wiki/Clearing_house_(finance)http://en.wikipedia.org/wiki/Bhubaneshwarhttp://en.wikipedia.org/wiki/Guwahatihttp://en.wikipedia.org/wiki/Jaipurhttp://en.wikipedia.org/wiki/Patnahttp://en.wikipedia.org/wiki/Thiruvananthapuramhttp://en.wikipedia.org/wiki/Chequehttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Delhihttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-autogenerated1-16http://en.wikipedia.org/wiki/Payment_systemhttp://en.wikipedia.org/wiki/Clearing_(finance)http://en.wikipedia.org/wiki/Settlement_(finance)http://en.wikipedia.org/wiki/Banking_in_India#cite_note-17http://en.wikipedia.org/wiki/Electronic_Funds_Transferhttp://en.wikipedia.org/wiki/Electronic_Funds_Transferhttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-18http://en.wikipedia.org/wiki/Banking_in_India#cite_note-autogenerated1-16http://en.wikipedia.org/wiki/Banking_in_India#cite_note-13http://en.wikipedia.org/wiki/MICRhttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-14http://en.wikipedia.org/wiki/Banking_in_India#cite_note-15http://en.wikipedia.org/wiki/Clearing_house_(finance)http://en.wikipedia.org/wiki/Bhubaneshwarhttp://en.wikipedia.org/wiki/Guwahatihttp://en.wikipedia.org/wiki/Jaipurhttp://en.wikipedia.org/wiki/Patnahttp://en.wikipedia.org/wiki/Thiruvananthapuramhttp://en.wikipedia.org/wiki/Chequehttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Delhihttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-autogenerated1-16http://en.wikipedia.org/wiki/Payment_systemhttp://en.wikipedia.org/wiki/Clearing_(finance)http://en.wikipedia.org/wiki/Settlement_(finance)http://en.wikipedia.org/wiki/Banking_in_India#cite_note-17http://en.wikipedia.org/wiki/Electronic_Funds_Transferhttp://en.wikipedia.org/wiki/Electronic_Funds_Transferhttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-18http://en.wikipedia.org/wiki/Banking_in_India#cite_note-autogenerated1-16


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"ypes o! Banks in India#

$a%ings banks

The saings banks are es#ecially for those who belong to the low income grou#s or

those who are salaried. The saings banks function with the intention to hel#

#eo#le culminate the saing habits, which is es#ecially for those who belong to the

lower income grou#s or those who are salaried. The #ost office is also in a way a

saing bank, where #eo#le can o#en recurring accounts to sae money.

Co&&ercial Banks

The main function of these ty#es of banks is to gie financial serices to the

entre#reneurs and businesses. It gies financial to the businessmen like #roiding

them with debit cards, banks accounts, short term de#osits, etc. with the money

de#osited by #eo#le in such banks. The commercial banks also lend money to these

businessmen in the form of secured loans, unsecured loans, credit cards, oerdrafts

and mortgage loans. It got the tag of a nationali0ed bank in the year 1&"& and

hence the arious #olicies regarding the loans, rates of interest, etc are controlled

by the -esere Banks of India.

The further classifications of the commercial banks are #riate sector banks, #ublic

sector banks, regional banks and foreign banks.


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Pri%ate $ector Banks

These banks are owned and o#erated by the #riate institutes and are controlled by

the market forces. The greater share of the #riate sector banks is held by #riate

#layers and not the goernment. Some good exam#le of 3riate sector banks areHotak $ahindra bank, ICICI Bank,


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1. State coo#eratie Banks

'. Central coo#eratie banks

/. 3rimary griculture Credit Societies

Inestment Banks#

Inestment banks are financial institutions which #roide financial assistance to its

customers. Their clients include goernment organi0ations, indiiduals or

businesses. >hen there is an ac+uisition or merger, these customers are #roided

with necessary su##ort like foreign exchange, foreign trading, marketing, sale of

e+uities, fixed income instruments, etc. These banks, a#art from ca#ital raising,

also render aluable financial adise to their arious kinds of businesses and

customers. Banks like the Bank of merica, 9eutsche Bank, Citi Bank, etc. aresome exam#les of Inestment Bank.

S#eciali0ed Banks@

The main function of s#eciali0ed banks is to #roide uni+ue serices to their

customers. Some exam#le of s#eciali0ed banks are foreign exchange banks,

industrial banks, deelo#ment banks, ex#ort im#ort banks, etc. S#eciali0ed banks

also #roide financial su##ort to arious kinds of #roects and businesses who hae

to ex#ort or im#ort their serices or goods.

Central Bank@


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It is called the banker(s bank in our country. The 'eser%e Bank o! India is the

central Bank that is fully owned by the 6oernment. It is goerned by a central

board 2headed by a 6oernor5 a##ointed by the Central 6oernment. It issues

guidelines for the functioning of all banks o#erating within the country. The

monetary control is the #rimary function of a central bank and is also considered asthe lender to arious commercial banks.


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>hat is -T6S System

The acronym (-T6S( stands for -eal Time 6ross Settlement, which can be defined

as the continuous realtime settlement of funds transfers indiidually on an order

by order basis . (-eal Time( means the #rocessing of instructions at the time they

are receied rather than at some later time; (6ross Settlement( means the settlement

of funds transfer instructions occurs indiidually . Considering that the funds

settlement takes #lace in the books of the -esere Bank of India, the #ayments are

final and irreocable.


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7ational %lectronic *unds Transfer 27%*T5

7ational %lectronic *unds Transfer 27%*T5 7%*T is electronic funds transfer system, which facilitates transfer of funds to other bank accounts in oer "/!!!

bank branches across the country. This is a sim#le, secure, safe, fastest and cost

effectie way to transfer funds es#ecially for -etail remittances.

()"*')$ + B)N)(I"$

Customers can remit any amount using 7%*T Customer intending to remit money

through 7%*T has to furnish the following #articulars@

• I*SC 2Indian *inancial System Code5 of the beneficiary BankGBranch

• *ull account number of the beneficiary

•

7ame of the beneficiary.

The facility is also aailable through online mode for all internet banking and

mobile banking customers.

*or cor#orate customers, bulk u#load facility is also aailable at branches.

"I,IN$

Customers can use this facility between 8 $ and = 3$ on all weekdays and

between 8 $ and 1 3$ on Saturday. There are twele hourly settlements between

8 $ and = 3$ on all weekdays and six hourly settlements between 8 $ and 1

3$ on Saturdays.


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The money will be credited to the beneficiaryJs account on the same day or at the

most next day in case the message is sent during the last batch of settlement. 4nion

Bank offers 7%*T facility to its customers through all its branches.

"he role o! the In%est&ent Bank @

Inestment banks #roide four #rimary ty#es of serices@ raising ca#ital, adising

in mergers and ac+uisitions, executing securities sales and trading, and #erforming

general adisory serices. $ost of the maor >all Street firms are actie in each of

these categories. Smaller inestment banks may s#eciali0e in two or three of these

categories.

-aising Ca#ital@

n inestment bank can assist a firm in raising funds to achiee a ariety of

obecties, such as to ac+uire another com#any, reduce its debt load, ex#and

existing o#erations, or for s#ecific #roect financing. Ca#ital can include some

combination of debt, common e+uity, #referred e+uity, and hybrid securities such

as conertible debt or debt with warrants. lthough many #eo#le associate raising

ca#ital with #ublic stock offerings, a great deal of ca#ital is actually raised through


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#riate #lacements with institutions, s#eciali0ed inestment funds, and #riate

indiiduals. The inestment bank will work with the client to structure the

transaction to meet s#ecific obecties while being attractie to inestors.

$ergers and c+uisitions@

Inestment banks often re#resent firms in mergers, ac+uisitions, and diestitures.

%xam#le #roects include the ac+uisition of a s#ecific firm, the sale of a com#any

or a subsidiary of the com#any, and assistance in identifying, structuring, and

executing a merger or oint enture. In each case, the inestment bank should #roide a thorough analysis of the entity bought or sold, as well as a aluation

range and recommended structure.

Sales and Trading@

These serices are #rimarily releant only to #ublicly traded firms, or firms which

#lan to go #ublic in the near future. S#ecific functions include making a market ina stock, #lacing new offerings, and #ublishing research re#orts.

6eneral disory Serices@

disory serices include assignments such as strategic #lanning, business

aluations, assisting in financial restructurings, and #roiding an o#inion as to the

fairness of a #ro#osed transaction.


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.i!!erent $er%ices o!!ered under In%est&ent Banking @

Inestment banking is a serice business, and the client should ex#ect to#notch

serice from the inestment banking firm. 6enerally only large client firms will get

this ty#e of serice from the maor >all Street inestment banks; com#anies with

less than about K1!! million in reenues are better sered by smaller inestment

banks. Some criteria to consider include@

Serices Affered

*or all functions exce#t sales and trading, the serices should go well beyond

sim#ly making introductions, or brokering a transaction. *or exam#le, most

#roects will include detailed industry and financial analysis, #re#aration of

releant documentation such as an offering memorandum or #resentation to the

Board of 9irectors, assistance with due diligence, negotiating the terms of the

transaction, coordinating legal, accounting, and other adisors, and generally

assisting in all #hases of the #roect to ensure successful com#letion.

%x#erience @

It extremely im#ortant to make sure that ex#erienced, senior members of the

inestment banking firm will be actie in the #roect on a daytoday basis.

9e#ending on the ty#e of transaction, it may be #referable to work with an

inestment bank that has some background in your s#ecific industry segment. The

inestment bank should hae a wide network of releant contacts, such as #otential

inestors or com#anies that could be a##roached for ac+uisition.

-ecord of Success @

lthough no re#utable inestment bank will guarantee success, the firm must hae

a demonstrated record of closing transactions.

bility to >ork Luickly @


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Aften, inestment banking #roects hae ery s#ecific deadlines, for exam#le when

bidding on a com#any that is for sale. The inestment bank must be willing and

able to #ut the right #eo#le on the #roect and work diligently to meet critical

deadlines.

*ee Structure@

6enerally, an inestment bank will charge an initial retainer fee, which may be

onetime or monthly, with the maority of the fee contingent u#on successful

com#letion of the transaction. It is im#ortant to utili0e a fee structure that aligns the

inestment bank(s incentie with your own.

Angoing Su##ort@


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Corporate Banking and the ser%ices pro%ided under it @

Cor#orate banking ty#ically refers to financial serices offered to large clients2(wholesale clients(5.lthough many wholesale clients are large cor#orations, they

may also include other institutions like #ension funds, goernments and other

2semi5 #ublic entities. Cor#orate banking is a ery #rofitable diision for banks,

far more #rofitable than retail banking, which is aimed towards households and

small and medium enter#rises 2S$%(s5

The Serices #roided@

The serices offered by cor#orate diisions of banks include 2a5 general actiities,

and 2b5 serices #articularly tailored to large clients such as multinational

com#anies.

2a5@ Commercial banking actiities include traditional banking serices like de#osit

taking, lending, lines of credit, and facilitation of arious kinds of financial

transactions 2ebanking, credit cards, etc.5.


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•

• Insurance@

Banks may also sell insurance #roducts, although insurance is traditionally not a

banking actiity. gain, consolidation in the financial serices industry has broughttogether many different financial serices. These serices allow cor#orate clients to

access many different serices within a single financial institution. >hile banks

may also offer retail insurance #roducts to indiiduals, cor#orate insurance may

coer com#any actiities, staff and management.

• disory serices@

>holesale banking actiities also include financial adising for all kinds of

cor#orate and financial actiities, such as mergers and ac+uisitions, asset

management, and taxation 2e.g. the use of tax haens5.

"ypes o! Instru&ents in In%est&ent Banking#

Certificates of 9e#osit

• $ost commercial banks offer certificates of de#osit that #ay a fixed amount

of money for six months, one year or another designated time #eriod. Mou

earn interest on the C9s and your inestment is #rotected. ccording to the

4.S. Securities and %xchange Commission, C9s hae federal de#osit

insurance u# to K')!,!!!, but that amount is subect to change. The

adantage of C9s is that you are guaranteed an income in almost all cases.

Ane of the disadantages it that if you withdraw early you might hae to #ay

a #enalty. lso, the returns on C9s tend to lag well below other ty#es of

inestments.

Treasury Securities


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olatility, due to factors ranging from economic stability to the

com#etitieness of a com#any in the market#lace. 7ewly list com#anies

with short track records and stiff com#etition tend to ex#erience high #rice

olatility.

Documents

Banking Grp 7