Vocabulary

deposit – вклад, депозит

depositor – депонент, вкладчик, владелец банковского счёта

intermediate - посредничать

pool – объединять в общий фонд

deposit institution =

depository institution - депозитное учреждение (сберегательное учреждение, занимающееся приёмом вкладов)

nondeposit (nondepository) institution – кредитное учреждение

checking account – чековый счёт; текущий счёт в банке

savings account – сберегательный счёт

thrifts – pl. амер. сберегательные кассы

savings and loan association – ссудо-сберегательная ассоциация

mortgage lending – ссуживание под залог

mortgage – ипотека; залог, закладная

credit union – кредитный союз

insurance company – страховая компания

pension fund – пенсионный фонд

commercial finance company – финансовая компания, предоставляющая

краткосрочные кредиты только фирмам

consumer financial company – компания потребительского кредита

safe-deposit box – сейф для хранения ценностей

tax-deferred individual retirement account – персональный накопительный

счёт с отсрочкой уплаты подоходного налога

discount brokerage services – брокерские учётные операции

financial counseling – консультирование по финансовым вопросам,

финансовый консалтинг

traveler’s check – дорожный чек

overdraft – овердрафт (превышение остатка счёта в банке); превышение

кредита

account balance – остаток на счёте

foreign exchange – иностранная валюта

foreign exchange market – валютный рынок

currency – 1) деньги (монеты, банкноты) 2) валюта

broker – брокер (фирма или лицо по купле – продаже ценных бумаг или

товаров на бирже)

dealer – дилер (биржевой торговец, заключающий сделки за собственный счёт)

clear checks – осуществлять клиринг чеков (зачёт взаимных банковских требований и обязательств)

demand deposit – бессрочный вклад

real estate (construction, home) mortgage loan – ссуда под недвижимость (незавершённое строительство, дом)

NOW account =

negotiable-order-of-withdrawal account – «НАУ” счёт; текущий счёт, приносящий доход

passbook savings account – cберегательный счёт с выдачей сберкнижки

time deposit – срочный вклад

money market deposit account – краткосрочный депозитный счёт с

ограниченными правами на выписку чеков

(не более трёх денежных изъятий в месяц)

share draft account – счёт движения дивидендов; чековый паевой счёт,

предлагаемый кредитным союзом

policyholder – страхователь

securities = financial instruments – ценные бумаги

COMPREHENSION QUESTIONS

1. What was the function of the earliest banking? Comment on the origin of

the word “bank”.

2. Define banking as business. What is the role and function of banks

nowadays?

3. Identify two major types of financial institutions.

4. Specify the principal function of deposit financial institutions. What types of deposit institutions do you know?

5. What types do nondeposit financial institutions include?

6. Describe the traditional types of services banks provide for the customers.

7. What is the role of banks in the foreign exchange market?

8. What functions do Central banks perform?

C. The Banking Firm: A Simple Model

Commercial banks have been historically the most important kind of financial intermediary. These are depository institutions that face few legal restrictions on their powers to lend to businesses and can legally issue checking deposits from which holders may write unlimited numbers of checks. There are currently more than 8,000 commercial banks in the United States, and they are the predominant depository financial institutions in the country. Savings banks and savings and loan institutions nowadays operate in ways similar to commercial banks, have similar assets and liabilities, compete with each other and with commercial banks for business, and can be referred to as banks.

Bank assets fall into three main categories: loans, securities, and cash assets. Because lending is the bread-and-butter business of commercial banks, loans compose the predominant category of assets held by commercial banks. Loans include commercial and industrial loans, real estate loans, consumer loans, and very short-term loans that banks make in the federal funds market. Those loans that commercial banks and other depository institutions make to businesses are commercial and industrial (C&I) loans. Businesses use funding from C&I loans to meet day-to-day cash needs or to finance purchases and equipment. C&I loans can be secured or unsecured. Secured loans are those backed by something of value, known as collateral, which may be seized by the lender in the event that the borrower fails to repay the loan. The most common type of secured loan is mortgage, in which a piece of property like a building is used as collateral. An unsecured loan requires no collateral. One example of an unsecured loan is a working capital line of credit, which is an agreed-on maximum amount of money the bank is willing to lend the business during a specific period of time, usually one year. Once a line of credit has been established, the business may obtain unsecured loans for any amount up to that limit. The line of credit can be canceled at any time, so companies that want to be sure of obtaining credit when needed should arrange a revolving line of credit, which guarantees that the bank will honor the line of credit up to the stated amount.

Commercial banks also extend credit to individuals. These loans are consumer loans. Banks typically issue consumer loans for purchase of automobiles or mobile homes in the form of installment credit. Under an installment credit agreement, the individual borrower agrees to repay the principal and interest in equal periodic payments. Included among consumer loans is revolving credit, which refers to bank lending to individuals up to some preset limit, or ceiling. Consumers have automatic approval to borrow as long as they do not exceed their credit ceilings, and they may pay off their loan balance at any time. Credit cards are the most widely used form of consumer revolving credit.

Real estate loans are ones that banks make to finance purchases of real property, buildings, and fixtures (items permanently attached to real estate) by businesses and individuals. Real estate lending has become a relatively more important business for commercial banks.

The government securities, including Treasury bills, notes, and bonds, are a key type of security held by commercial banks. The other group of securities is state and municipal bonds (the U.S. banks).

The most liquid assets that banks hold arecash assets, which are the bank assets that function as media of exchange. One component of cash assets is vault cash, which is currency that commercial banks hold at their offices to meet depositors’ needs for cash withdrawals on a day-to-day basis. Other cash assets include reserve deposits at central banks, correspondent balances(deposit accounts that banks hold with other banks), andcash items in the process of collection.

The key liabilities of banks include so-called noncontrollable liabilities such as demand deposits, savings deposits, and small denomination time deposits and controllable liabilities – large denomination time deposits such as certificates of deposit and federal funds borrowings. The excess of assets over liabilities is a bank’s equity capital, or net worth.

When business people borrow money from a bank, they agree to pay a certain number of dollars (yens, rubles, etc.) a year in interest for every hundred dollars they borrow. The sum borrowed is called theprincipal, and the percentage paid is called the rate. If they pay five dollars for every hundred dollars they borrow, they are paying interest at a rate of 5 per cent. The upper limit of theinterest rate is fixed by the amount borrowers can afford to pay and still make a profit with their borrowed money. Interest rates vary a great deal with different types of loans. A large corporation with a long record of making good profits can borrow more cheaply than a smaller, unproved company. The rate is higher on long-term loans than on short-term ones because a dollar is worth less tomorrow than it is today. Interest rates fluctuate. The prime interest rate (prime) is the lowest interest rate charged by banks for short-term loans to their most credit-worthy customers (preferred borrowers). The prime changes irregularly and, at times, quite frequently: sometimes because of supply and demand; other times because the prime rate is closely tied to the discount rate, the interest rate central banks charge on loans to commercial banks and other depository institutions.

Exhibit 2. 2. Commercial Bank Assets (Source: Board of Governors of the Federal Reserve System, Statistical Release.)

	Commercial Bank Assets ($ Billions), July 31, 2002
	Commercial & Industrial loans				$	990.2		14.8%
	Consumer loans					568.7		8.5%
	Real estate loans					1,878.7		28.0%
	Interbank loans					305.9		4.6%
	Other loans					284.1		4.2%
	Total loans				$	4,027.6		60.1%
	U.S. government securities				$	932.2		13.9%
	Other securities					683.9		10.2%
	Total securities				$	1,616.1		24.1%
	Cash assets				$	304.7		4.5%
	Other assets				$	755.0		11.3%
	Total assets				$	6,703.4		100.0%

Exhibit 2. 3. Commercial Bank Liabilities (Source: Board of Governors of the Federal Reserve System, Statistical Release.)

	Commercial Bank Liabilities and Equity Capital ($ Billions), July 31, 2002
	Transactions deposits				$	635.8		9.5%
	Small time and savings deposits					2,765.9		41.3%
	Large time deposits					1,051.1		15.6%
	Total deposits				$	4,452.8		66.4%
	Borrowings from banks				$	393.5		5.9%
	Other borrowings					897.2		13.4%
	Total borrowings				$	1,290.7		19.3%
	Other liabilities				$	423.6		6.3%
	Equity capital*				$	536.3		8.0%	*
	Total liabilities & equity				$	6,703.4		100.0%

* Authors’ estimate