Banking Finance

With the introduction of Internet technology, the world of communication got a new media. Though the primary reason behind the invention of Internet technology is making more smooth and hassles-free communication, but in this contemporary time this media is used for almost all purposes and financial sector is not an exception.

Indian banking sector has witnessed a long history in the past hundred years. Now in this 21st century, the Indian banking scenario has completely changed. Now along with the nationalised banks, several private and even foreign banks have started business in India. To survive in this cut-throat competitive market along with customer satisfaction, banks are emphasising on the quality and variants of services. Now almost all the Indian banks are walking on the contemporary age of advanced technological revolution and offering their customers the Online banking services.

The Online banking services are basically those services by which one can access his/her bank account and general information on banking products through computer or other intelligent devices with the help of Internet. Indian banks provide different kinds of services under Online banking. Among those some of the most popular and common services are Cash management, Automated clearinghouse (ACH) transactions, Bill presentment and payment and Wire transfer. Apart from these, through Online banking services one will be able to make balance enquiry, download transaction information, accomplish investment activities and other value-added services, bill presentation and payment, loan applications, funds transfer and so on. So, it is clearly understandable that the Online banking services in India give you all sort of services that you can get from bank.

It has been noticed that for the last few years the popularity of Online banking services in India has grown-up in an amazing fashion. The primary reasons behind it is the advantages that are given by the banks through this service. The primary advantage the customers get is saving on time. By going this media, one doesn’t need to visit the bank physically and wait for making transaction and so on; all the banking works can be done just by doing few clicks. The second most important benefit the users get is the option of accessibility world-wide. As the whole system is being operated through the Internet, you will get the opportunity to accomplish your banking work from anywhere in the world, where the Internet is accessible. Now in this modern age with the blessing of advanced mobile technology, even you can do your banking work while on your move.

But when it comes to Online banking , one should make some very clear points in mind. Some of those most important points are – not accessing the Online banking services from Cyber Cafes, protection of PIN number, avoiding of replying unknown email regarding finance query and so on.

The features of Online banking services are broadly categorised under few categories, like Electronic bill presentation and payment (EBPP), Fund Transfer, Investment purchase and sell, loan applications and transactions etc. Among all these it has been seen that the demands of Online investment is increasing day-by-day. Through the Online service one will be able to make even a fixed term deposit with ease.

So, from the above discussion one thing is quite clear that to get the ultimate advantage of advanced banking services nothing but the Online banking services would be the best option for you.

In the present day banking scenario, the Online banking services have helped the banking customers in a significant manner. One can easily identify the unprecedented changes that have been taking place in the banking sector ever since the economic reforms were launched way back in 1991.

Two of the biggest segments of the Indian economy that have seen the best of these changes are the Online Banking services and fixed term deposit segments. Both these segments have been able to encourage the prospective customers to think beyond the previously framed rules and regulations.

In the world of Online Banking services and fixed term deposit, things have started changing like never-before. With the procedures and mediums of performing the banking services on the World Wide Web, things have changed and are much easier these days. Nowadays, a prospective loan applicant can fill an online form to request for a loan of any kind. Similarly, a banking customer can make an online request to view his account balance, request for a cheque book or statement, perform funds transfers and even issue a Demand draft or an e-cheque. These are just a few of the things one can perform by going online.

A customer can implement some useful things to ensure a hassle-free stint at the banking portals, such as:

Avoid banking at Cyber Cafés
Getting aware of phishing emails and scams
By remembering PIN and card together and by not keeping them in public view
Not keeping easy PINs, which can be easily cracked and avoid their sharing
By avoiding any passage of information related to accounts
By not replying to unknown emails
By immediately reporting a lost or stolen card and lodging a FIR with the police

However, there are certain things that need to be taken care off while using banking services on the Internet. The banking services must not be accessed, frequently, from a common PC or a laptop as that may lead to data leakage, leading to huge financial liabilities and losses. A person, desirous of using these services, must check the authenticity and encryption level of the website, on which he expects to perform banking tasks.

The advent of online services has helped the banking community to have a sigh of relief and get much-needed relief from the earlier times of banking, where standing in long-queues was a common practice.

A customer can easily opt for a fixed deposit by using the online banking services. He can also opt for a saving or current account while submitting his application on the Internet. However, he still needs to submit the necessary paperwork for that, besides fulfilling the eligibility criteria.

Many leading banks in the world of Indian banking sector such as State Bank of India, Kotak Bank, HDFC Bank, UTI, Standard Chartered and ABN AMRO etc. to name a few, have already started their online banking operations. Many other new names such as Barclays Bank have also entered in the Indian banking segment and have created a name for themselves in a short span of time. The greatest benefit of these services is that a customer gets banking solutions within a fraction of a second and moreover, the banking staff is relieved from some of its duties leading to more efficiency.

Thus, it can be easily concluded that the Online Banking services have largely stimulated the Indian economy and banking sector to a considerable extent. The banking customer of today is a lucky fellow, who just cannot believe his luck.

Wholesale banking is often defined as banking services which are provided between merchant banks and other financial institutions. Although, wholesale banking is also a term referred to the wide range of financial services that are provided by financial institutions to various businesses and corporations as well as the government. Retail banking and wholesale banking are two different things. Wholesale banking focuses more on corporate style entities and high-value transactions, while retail banking focuses on individual customers and sometimes small businesses. Sometimes a bank will engage in both wholesale and retail banking.

Wholesale banking provides the normal banking services such as checking and savings, certificates of deposit, safe deposit boxes, annuities, retirement funds and other investment opportunities. There are many packages to choose from at a wholesale banking company. Many people discount wholesale banking because they feel their money is not safe but their money is just as safe in the wholesale banking industry as it is in the regular banking industry.

Wholesale banking includes providing a large range of services to large, corporations, midsize companies and small businesses. These services are often offered at a discounted rate based on the number of services included in the package. This approach makes it more attractive for a company to place all their financial matters with a single institution rather than spreading them out into different banks and agencies for each banking service that the business needs in order to function.

Real estate developers and real estate agents in addition to market investors and others that operated by buying and selling properties or other forms of investments use wholesale banking. The advantage of the wholesale banking is in this application is the ease of access to the total financial portfolio, which makes transactions and transfers between accounts much easier. Wholesale banking also has features that allow for efficient transfers of funds, stock ownership and other financial instruments between financial institutions.

Wholesale banking packages that are extended to businesses and government entities can include a range of other financial services as well. Discounted interest rates are commonly included as part of the incentive package for entering into a wholesale financial arrangement. In addition to such valuable support services as consultation on investments, help with the details of major merger acquisitions and various underwriting services are also included in wholesale banking support.

Many of the larger banks are actually wholesale banks that deal with large corporations and governments but also deal with regular individuals. You might own a small business and want to deal with the wholesale banker, but don’t know where to find one. You can ask your real estate agent who helped you find your business location if he or she knows of a good wholesale bank or you can look in the local phone book or through the Internet and find several wholesale banks willing to deal with your small business. They do not discriminate on how small or how larger businesses if you want to put your money in their bank and bundle it with packages such as savings and IRAs and CDs that they will be happy to assist you.

I. Control Potential of a Holding Company

Holding corporations derive some protection from their detached status as non-owners. Despite its status, a holding company can reap the benefits of its detachment without loss of control. Under the Savings and Loan Holding Company Act of 1967, holding companies are allowed to control thrifts. Thrifts are saving and loan associations that take deposits for loan obligations. (Black’s Law Dictionary). Thrift Associations give the holding company control of assets, but they are also heavily regulated under the supervision of the Office of Thrift Supervision. Out of the 1300 thrifts regulated by OTS, approximately half are controlled by holding companies. (Office of Thrift Supervision).

The Gramm-Leach-Bliley Act authorizes greater control for financial holding Corporations (FHC)s. Under older guidelines, holding corporations were only permitted to be “passive” and operate subsidiaries through “routine management.” (Dunham). FHCs may now become “full participants in the business of organizing, marketing, managing and investing in private equity funds and … an insurance holding company [may] remain in the set businesses after acquiring a bank.” (Dunham at p. 5).

Thrift Associations are frequently thrown into the general category of banking. (Investopedia.com). However, under the Bank Holding Act of 1956 (12 U.S.C. § 1841), thrifts engaged in insurance activities are not considered banks. Rather, they are institutions or associations. In fact, the Gramm-Leach-Bliley Act discussed below specifically addresses bank holding companies engaged in non-banking activities. A FHC may acquire control of 100 percent of a company’s voting rights, but may not hold the company interests in a depository institution which is a subsidiary of the FHC. (Duhham at p.5)

A recent controversy has arisen regarding the ability of holding corporations to gain too much control of the banking industry through thrifts. The Riegle-Neal Interstate Banking Act prohibits bank holding companies from obtaining more than 10 percent of U.S. deposits by purchasing other banks. (Taggart). Through thrifts, holding corporations can manipulate a loophole that would give them control over more than 10 percent of U.S. deposits. (Taggart). Wachovia Corporation’s recent attempt to purchase a California based bank recently raised concern over this issue. However, even if the acquisition does go through, Wachovia will not come close to the 10 percent limit. (Taggart).

II. Diversification

Section 4(c)(8) of the Bank Holding Company Act (BHC Act) permits bank holding companies (BHC)s to engage in non-banking activities as long as they are “closely related to banking.” The close relation to banking requirement essentially restricts BHC activities to insurance related activities, but does not allow a BHC to underwrite insurance. These holding company activities are largely regulated by state law. (Dunham at p.5).

The Gramm-Leach-Bliley Act of 1999 is the legislation that initially permitted a commercial bank and an insurer to operate under a single holding corporation. Prior to the Gramm-Leach-Bliley Act, an insurance holding company could not own a commercial bank. An insurance company could own one thrift under the old rules. Now, restrictions are derived from the BHC Act which regulates affiliations between the bank holding companies and insurance companies. (Dunham at p. 2).

Under the Gramm-Leach-Bliley Act, it is highly advantageous for a BHC to become certified as a financial holding company (FHC). A BHC is certified as an FHC through the Board of Governors of the Federal Reserve System (The Board). (Dunham at p.4). The Board has been allocated extensive power to expand FHC activities. (Dunham). The Board may even veto proposals by the Treasury Department to authorize new activities.

Through investment in insurance sectors and banking sectors, holding companies have the greatest potential for diversification. “Insurance companies will be the FHC subsidiaries that have the greatest flexibility to make venture capital and merchant banking investments in non-financial businesses.” (Dunham at p.6). However, the insurance market has changed drastically over the last several years. (Eslick at p.4). Large insurance companies have consolidated and now approximately “20 percent of brokers…drive 80 percent of the volume.” (Eslick).

Holding corporations are restricted in their operations by the Gramm-Leech-Bliley Act, but their defined roles can be used efficiently to find an appropriate market. One function that satisfies the “closely related to banking” requirement of the BHC Act is to operate a limited purpose trust company. Limited purpose trust companies operate entirely in a fiduciary capacity and therefore do not qualify as “banks” under the BHC Act. (Dunham at p.4)

While holding corporations typically maintain expertise in one general area such as farming or home loans, there is potential for corporations to diversify their sector portfolio. Holding corporations in different markets typically have dissimilar concerns that will impact the structure of their organization. For instance, Cascade Bancorp, the holding corporation for Farmers & Merchants State Bank of Idaho, has done well enough to split its stock. (Idaho Business Review Staff Report). Conversely, SLM, otherwise known as Sallie Mae, a student loan corporation, may be negatively impacted by potential interest rate cuts under the upcoming reauthorization of the Higher Education Act.

III. Political Climate

Holding companies like Sallie Mae are subject to ramifications from political change in Washington. For SLM, profitability is regulated by Congress. (McLean). Student loan interest rates are set by congressional legislation. (McLean). Sallie Mae, however, has not been encumbered by cuts from the student-loan program. In fact, its stock has done quite well since the company has been protected by legislation from the seventies which guarantees a 9.5 percent return to student lenders. (McLean at p. 3).

Political ramifications and pertinent legislation are essential to understanding the structure of a business. Typically, interest rates are the focus of corporate volatility, but direct legislation and indirect legislation must be predicted in a business plan. An example of direct legislation for an oil company would be the opening of oil reserves. An example of indirect legislation might be the effects of taxation aimed (intentionally or unintentionally) at a particular market.

IV. Taxation

Flexibility is the main benefit derived from a holding corporation, but there are other factors that should be considered in light of the risks that a holding corporation will face. A Start up business may be hesitant to structure itself as a corporation. C-corporations are burdened by double taxation. A preferred arrangement for a holding company may be to structure itself as an s-corporation to avoid double taxation. S-corporations are taxed like partnerships. Profits and losses are “passed through” to the shareholders. (Minassian). There are, however, complex guidelines that s-corporations must follow. (Minassian).

VI. Corporate Governance

Recent legislation has attempted to control corporate wrongdoing through regulation aimed at parent corporations. Some legislation has imposed criminal sanctions on corporate actors that cause injury or death through negligence, willful, or malicious intent. (McGillivray).

The question of corporate responsibility raises the age old debate over whether responsibility should be left to the market or state-imposed legal ramifications. Market theories depend on responsibility to shareholders for upholding ethical conduct. There are various theories on how much state control should be exercised over corporations. At the most extreme end, enterprise liability holds all parties involved responsible for the wrongdoing of a company. However, the center of the debate is balanced on requiring some degree of knowledge related to culpable conduct before holding parties responsible.

On the international front, global regulation is considered in three models. The neo-classic or liberal model relies on entirely free markets and loose state regulation to control corporations. (Backer). The second model, moral restraint, relies entirely on moral responsibility to control corporate behavior. (Backer). The third model, the control model, polices corporate conduct through direct and indirect regulation. (Backer).

The debate over how to approach corporate governance is focused on corporations that have holding company structures. A holding company can avoid responsibility for the actions of its holdings or actors at lower levels. However, more regulation is forthcoming for corporations that exercise control over offending companies or have knowledge of their actions.

In forming corporate structures, many companies have preempted domestic legislation by creating their own policies to prevent association with corporate wrongdoing. These policies, often referred to as soft law, impose requirements on contractors and sub-entities.

VII. Foreign Impact

U.S. holding corporations have recently raised objection to guidelines regarding criteria to become a financial holding company (FHC). (Dunham at p. 9). Foreign corporations that own subsidiary banks in the U.S. are subject to the Bank Holding Company Act (BHCA). (Dunham). Most foreign banks operating in the U.S. do not operate through bank subsidiaries. In order to qualify as a FHC, foreign banks must be “well capitalized” and “well managed.” (Dunham). Domestic corporations have objected to the method for determining a “well-capitalized” corporation. The method domestic corporations object to requires the corporation’s Tier 1 capital to hold assets leverage ratio to be at least 3 percent. (Dunham). Domestic corporations insist that the Basel Accord on banking supervision, does not contemplate a leverage ratio requirement. (Dunham). Since “foreign banks do not operate under a holding company structure, the assets and liabilities of a foreign bank’s affiliates will necessarily be incorporated into the bank’s consolidated financial statements.” (Dunham) The Board is currently addressing concerns over this matter by developing alternative methods. (Dunham at p.10).

Conclusion

Start up businesses must structure themselves in a way that reflects their long term expectations. The initial decision to form a corporation may be based on considerations such as tax implications or desire to protect resources. However, corporate structure decisions should also consider control, flexibility, and political climate.

Recent legislation has helped holding companies to be more flexible and maintain control over subsidiary companies. A thorough understanding of the direct and indirect legislation affecting markets is necessary to operate efficiently. Moreover, an understanding of political climate is necessary to predict corporate implications.

A holding corporation structure will provide the flexibility and control necessary to compete in today’s markets. However, the specifics of the market(s) involved and the degrees of control exercised will be determinative of the business’s success.

Banks and bank services have existed throughout history; it is believed they predate currency and traces of bank records are estimated to have been present in the third millennium B.C. In the ancient world they held grain, cattle and precious metals such as gold and are believed to have carried out their business in temples and palaces as these were the safest places to contain wealth.

The business bank relationship is believed to have begun in ancient Babylon where temple priests granted loans to merchants. It is believed that the first laws in society contained rules for banking and a bank code of conduct. Showing the extent at which banks and society are intertwined.

Ancient Greece took banking further by creating a centralised grain bank network and created credit slips for customers. These slips were used in business and consisted of instructions to bank tellers to perform deposits and withdrawals. This can be seen as a strengthening of the business bank relationship.

The Roman Empire perfected banking; being obsessed with administration, banks took a more recognisable form as increasing amounts of paperwork were involved in transactions. Detailed bank regulations and laws were also created to define the industry. The Romans also created the first bank charges in the form of interest. The business however experienced a downturn with the rise of Christianity as interest charges were seen as immoral; subsequently bank services dwindled in Western Europe until the time of the crusades.

The medieval period saw a revival for the business bank relationship. Trade fairs present in most major European cities began to create bills of exchange where notes were given in exchange for hard currency. These bills were redeemable at other cities and hence eliminated the necessity to carry huge fortunes across country; forming a far safer option for merchants. This need for the transfer of large sums of money was a direct result of the crusades and as the banks redeemed the bills in line with exchange rates and inflation, bank services started to become profitable.

Throughout the later medieval period the Italian bankers of Lombardy and Genoa became the financial powerhouses of the Mediterranean. Their loans allowed business to flourish as overseas trade became a mainstay of any nation’s economy. Italian bankers spread throughout Europe and appeared in many European cities. Although problems did arise when defaulted payments by monarchs caused the bank services to become political issues.

During the beginning of the modern period the business bank relationship was further enhanced. Expeditions to the new world were funded by banks in Spain and Portugal; such journeys became profitable for the bank tellers as the returns became vast after the initial outlay. In Britain, new trade businesses used banks to fund their activities in the new world with tobacco and coffee imports from the Indies being extremely profitable.

Bank services and loans were the backbone of the industrial revolution in Britain. Without the funding that supported the entrepreneurs the improvements to the transport network and creation of evermore complex steam engines would not have been possible. It is thanks to the banking that Britain became the richest nation in the world, the empire was dependent upon loans and the reason it expanded to such a huge extent was the desire to repay these sums of money.

In the modern world global bank services have shrunk the world. Transfers are now instantaneous and banks fund vast projects on a worldwide basis. The profits they gain break records on a regular basis, figures of twenty and thirty billion are not uncommon for the world’s largest banks. These sums make some banks wealthier than nations and subsequently the favour they hold in politics and business is seemingly unassailable.

Bank services have provided financial support for the business world since the beginnings of civilisation; today they hold a position of power as entrenched as many political systems. In many cases bank services have been fundamental in the formation of nations and political systems and have funded the exploration and empire building that has created the world we see today. The close business bank relationship is profitable for both sides, as long as banks are willing to fund entrepreneurial schemes the relationship is set to continue indefinitely.

Moving away from home for the first time can be a blast. This new found freedom is even more fun when you have your money situation handled. One of your first steps is to open your bank accounts.

How you manage your bank accounts today will determine whether you’re able to live the lifestyle you desire tomorrow. That’s why it’s important to open a bank account and establish a relationship with a bank as soon as possible. Opening a bank account will help you to develop a proven track record which can give you advantages when you need a student loan, a car loan, student credit card or a mortgage.

Why open a bank account?

1. Safety – Money that is held in a FDIC insured bank is safer than holding onto cash. Your accounts are insured by the government up to $100,000 so there is not a risk of losing money.

2. Interest – Everyday you have money sitting in a checking or savings account, the bank is paying you interest. Interest rates vary depending on the bank so when choosing a bank this is an important feature to compare.

3. Organizing your budget – A checking account is the hub of your finances. Money you deposit in there can be directed to pay bill, savings and investments.

4. Simplicity – Online banking allows you to automatically pay your bills. Once you set this up once you’re done. You just need to make sure you have enough money in your account when your bills go out.

5. Tracking – Paying someone in cash can result in problems. That cash can be put into someone’s wallet instead of being applies to your debt. Paying by check, credit card or debit card will leave a paper trail that will prove you paid the bill.

6. Deposits – Direct deposits from your employers to your bank offer you a paperless way to get paid. This saves you a trip to the bank and often you’re able to access the money immediately.

7. Future services -Building a long-term relationship with a bank will benefit you more over time. As your banking needs grow you can get better terms on student loans, student credit cards, auto loans and other services the longer you have a relationship with a bank.

How to Open a Bank Account.

When you open a bank account you should be looking to build a long partnership with the financial institution. Building a long-term relationship with a bank means you will one day receive preferred treatment. The next time you need a student credit card or other type of loan, you will typically qualify easier and pay lower fees because of the relationship you have built. Think of it this way: the sooner you open your bank account, the sooner you will enjoy preferred treatment.

Find a bank that offers services you need now and may need in the future. Immediately, your needs just may be for a checking account. However think ahead to the services you will need in the future. You need a credit card, a student loan or another service the bank offers. It’s much easier to locate one financial institution that can handle all your future needs.

In order to decide which bank is right for you and your money, you need to consider your expectations and purpose for opening a bank account: is it for business, pleasure, savings, wage-depositing, eventual loans, etc.?

Check out a few banks and compare bank fees, service charges, and interest rates. Also make sure their ATM’s are convenient. If not you could rack up additional fees for using other bank’s ATM machines.

When looking for a bank to do business with, select the bank that offers online banking. Online banking simplifies your life and makes all your banking transactions available at the click of a button. This allows you to check balances from the comfort of your own home and electronically pay monthly bills without ever writing a check. It also, it gives others the impression your bills are handled by a professional accountant.

Opening a bank account is the first step in building your financial foundation. The sooner you start developing a relationship with a bank or financial institution the more benefits you will receive now and in the future.

Like all Metrics Systems, Bank Metrics are a set way for banks to quantify their performance. Bank Metrics, like Performance Metrics is to be formulated according to the banks goals as well as the standards that they set for themselves. Banks differ in Goals. Some banks may see customer turnover as basis of success as opposed to some banks that view revenue as item by which they measure their success rate. There are several categories that help banks organize their metrics system report. Below are a few categories that can be found in a bank metrics report. Knowledge of the following will help Financing Heads and Company leaders to better understand the reports that are handed to them.

General Ledger Measurements can be found in a Bank Metric Report. A General Ledger Measurements is considered to be a fundamental analysis that businesses can perform when they are on a normal operating cycle. The data gathered here is noted down on balance sheets and information on the Bank’s income statement. This type of analysis is necessary as an indicator of the overall performance of a Bank; it also gives an idea of the financial status of the organization. General Ledger Measurements presents the following data: Average Balance, Income generated from Interests, Non Interest Income and Others.

Account Measurements are also found under a Bank Metrics report. This generally includes the following data: Number of Accounts, Customers as well as the number of households that avail of the services of the Bank under scrutiny. It also includes both the Average Balance and the Ending Balance. Account Measurement, unlike General Ledger Measurements can be conducted on any given time frame. This subtype of bank metrics is also able to cross the border of all types of banks from remote branches to regional organizations.

Another Sub category that is found in a Bank Metrics Report is that of Costing Measurements. Costing measurement is an analysis of the costs of the Bank in General; this subtype gives a view of the Banks income and expenses whether they are operating or non-operating.

Risk Calculation and Measurement is also presented in a typical Bank Metrics report. This will help Bank management to know what their expected losses should be on certain areas. It also discusses general and specific market risks. The General Market risks that are presented by a Bank Metrics report will give banks the opportunity to make similar comparisons. This means that they can compare their actual and expected loss rates with other banks that function the same way as they do.

Bank Metrics and Analytics can be performed by firms that specialize in this activity. Delegating this task to firms will take a huge weight off the shoulders of a bank’s finance office. Specialized firms will formulate customized bank metrics that is designed for the needs of a specific bank. Firms also lure clients by promising a ‘quick view’ report. This means that the data they have collected is easily viewed and understood by Bank personnel that are to review the reports.