Modern banking

The goldsmith bankers were an early example of a financial intermediary.

A financial intermediary is an institution that specializes in bringing lenders and borrowers together.

A commercial bank borrows money from the public, crediting them with a deposit. The deposit is a liability of the bank. It is money owed to depositors. In turn the bank lends money to firms, households or governments wishing to borrow.

Banks are not the only financial intermediaries. Insurance companies, pension funds, and building societies also take in money in order to relend it. The crucial feature of banks is that some of their liabilities are used as a means of payment, and are therefore part of the money stock.

Commercial banks are financial intermediaries with a government licence to make loans and issue deposits, including deposits against which cheques can be written.

Let's start by looking at the present-day UK banking system. Although the details vary from country to country, the general principle is much the same everywhere.

In the UK, the commercial banking system comprises about 600 registered banks, the National Girobank operating through post offices, and a dozen trustee savings banks. Much the most important single group is the London clearing banks. The clearing banks are so named because they have a central clearing house for handling payments by cheque.

A clearing system is a set of arrangements in which debts between banks are settled by adding up all the transactions in a given period and paying only the net amounts needed to balance inter-bank accounts.

Practice 1. Read the text and answer the questions.

1. What is a financial intermediary?

2. Do banks perform the function of a financial intermediary?

3. What is distinguishing feature of commercial banks?

4 What are the functions of a commercial bank?

5. How many commercial banks are there in the UK?

6. What is specific feature about clearing banks?

7. What is a clearing system?

Practice 2. Give the Russian equivalents to the words and word-combinations from the text:

- a financial intermediary;

- bring lenders and borrowers together;

- as a means of payment;

- part of the money stock;

- financial intermediary with a government licence;

- vary from country to country;

- be much the same everywhere;

-operate through post-offices;

- handle payments;

- inter-bank accounts.

Practice 3. Match up the words on the left with the definitions on the right.

1. intermediary A. producing or likely to produce profit

2. liability B. produce (esp. something printed or official)

3. insurance C. a place where banks exchange cheques or settle their accounts

4. borrow D.a person who comes between two people/groups of them to bring them into agreement

5. deposit E. an agreement by contract to pay money to sb./ if smth., esp. misfortune such as illness, death or an accident happens to them

6. owe to F. the amount of debt that must be paid

7. crucial G. take smth. from another person, with the understanding that it’ll be returned after a certain time

8. lend H. to have to pay for something

9. commercial I. give out money that must be repaid so as to earn profit from interest, esp. as a business

10. issue J. very important, essential

11. clearing house K. an act of placing money in a bank

Practice 4. Complete the sentences using the words from the table:

commercial liabilities lends

issued borrowed crucial

intermediary insurance deposit

1. Banknotes of this design were first … 20 years ago.

2. He acted as a … in the dispute.

3. If your … exceed your assets, you may go bankrupt.

4. All drivers in Britain must have third-party … .

5. I’d like to make a … please.

6. They … heavily from the bank to start their new business.

7. The bank currently … at 10 per cent interest.

8. The success of the experiment is … to the project as a whole.

9. Do these discoveries have any … value?

Practice 5. Complete the table:

noun verb adjective

discovery

issue

deposit

building

specialize

borrow

commercial

Text 9

Pre-reading tasks:

1. What economic specialties do you know?

2. What do you know about the profession of an auditor?