FINANCIAL INSTITUTIONS

Businesses that distribute or deal in money are called finan­cial institutions.New institutions that meet new financial needsare appearing almost every day. The most familiar institutions are commercial banks, savings banks, savings and loan associations, mutual savings banks, credit unions, in­vestment banksand so on.

A commercial bank is a privately owned profit-makingcorporation. It serves both individuals and businesses by offer­ing checking and savings accounts, loans,and credit cards.It also deals in some brokerage, insurance,and financial ad­vice.

The commercial bank is the most important source of short termloans for businesses. Sometimes the borrowers pledge collateralto back up the loan. Such loan is a secured loan.Companies with a good financial positionare given the prime rateof interest which is the lowest commercialinterest rate.

The commercial bank offers its customers accountsof two types: demand depositsand time deposits.A demand deposit makes the money in it availableto depositors immediately, while a time deposit requiresdepositors to leave their money with the bank for a stated periodof time.

Most banks offer their customersvarious savings certifi­cates,called certificates of deposit.Savers may put their money into thirty day, six month, or two and a half year certificates. The highest interest is paid to the customers who deposit their money for a longer period.

Banking services are not freeand banks charge feesfor them. Many banks assess a service feeif an account balancefalls beneath a particular minimum,such as $200.

Technological innovationsand increased competition in the faceof deregulationare changing the face of banking nowadays. Banks and other financial institutions are using com­puter technology now. One of the innovations is the electronic funds transfer which transfers money from individuals to the bank, from bank to bank, and from city to city through an electronic system.

Large banks are installing automatic tellermachines out­sidetheir buildings. A customer can get cash, make loan pay­ments, or transfer money from one account to another at any time of the day or night. The keyto the automatic teller machine is a debitcard which helps to make transfers directly to and from a customer's checking account.

Some large retailersare installing point-of-saleterminals which allowa retail customer to transfer funds from his bank account to the merchant'saccount.

Electronic funds transfer is making it easyfor commercial banks to acceptdeposits outside their home states. Groups of banks are setting up automatic teller machine networksfor the customers to use their debit cards to withdraw cash, transfer funds and check balances in other states.

Nowadays the banking industry is becoming less regulated. This process is stimulatingthe diversificationof banks, and service and pricecompetition. Financial supermarkets are ap­pearing all overthe United States. These new financial institu­tions are handling all types of financial transactions.They are selling life insurance to their customers, buying and selling their homes and are lending them money in addition to the traditional services of stock and bond transactions.

The competition that resultsfrom deregulation is urgingthe banks to offer more and better services to their customers.

V. Milovidov «English for Financial

Management Experts»

Date: 2016-01-14; view: 1116