Retail and wholesale activities of financial institutions 

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Retail and wholesale activities of financial institutions


Before looking at each of the groups of financial institutions in more detail, we must first to ask the question: what is the difference between the retail and wholesale activities of financial institutions?

The major distinction between retail and wholesale activities undertaken by financial institutions is in the size of transactions involved. Retail activities are concerned with deposits and loans that are of relatively low value, and wholesale activities are concerned with high-value deposits and loans. While no hard distinction between retail and wholesale is possible, a transaction of less than £1000,000 would usually be regarded as a retail transaction.

The distinction between retail and wholesale activities also retails to the type of customer involved. Predominantly, retail activities of banks will involve taking in deposits from and making loans to personal customers and small businesses. Notwithstanding this, note that very large organisations will often also need to make use of the retail financial services offered by banks. For example, if an organisation has a number of retail outlets, it will make use of local branches of banks in order to deposit cash and cheques.

A third aspect of the distinction between the retail and wholesale activities of financial institutions relates to the distribution system for the services provided.

Usually, the provision of retail activities has involved branch networks – best typified by the retail banks and by building societies. Although this is the usual format, note that developments in the technology, in particular, are enabling many retail financial services to be provided without a branch network, while some institutions – such as unit trusts – have never operated a branch network. Thus, telephone banking has been developed, while some building societies have launched ‘postal accounts’. In a few years’ time, retail financial services are likely to be widely available on the internet.

A consequence of retail activities involving transactions of relatively low value is the volume of such transactions will generally be very high. The banks, and increasingly the building societies, are as a consequence partly involved in money transmission facilities (such as cheque book accounts, electronic funds transfer and so on) to enable the transfer of funds from one individual or business to another to take place.

Wholesale activities, being concerned with high-value transactions, typically involve customers that are larger businesses or else other financial institutions. Since these high-value transactions will be of limited volume, a branch network to support such activities is unnecessary. Due to the high level of competition found in wholesale markets and due to the lower total costs arising to be gained from dealing with limited numbers of high value transmissions, the interest rates on wholesale transactions will generally be market-related rates and will usually be at a much finger margin in comparison to retail transactions.

Although the distinction between retail and wholesale activities is a useful one, remember that the distinction is in relation to activities rather than institutions. Many financial institutions will be engaged in both wholesale and retail activities. The retail banks, for example, are heavily engaged in wholesale activities, both in terms of obtaining funds and in lending. The larger building societies typically obtain a proportion of their funds from wholesale sources. The basis of classifications is therefore in terms of an institution’s dominant activity, rather than on its exclusive activity.


I. Key terms


Unit trust - пайовий траст (фонд) – an investment organization that invests funds subscribed by the public in securities and in return issues units that it will repurchase of any time. The subscriber to a unit trust does not unlike the shareholder in an investment trust receives any of the profits of the organization managing the trust.
Cheque (US-check) - чек – an order written by the drawer to a commercial bank or central bank to pay on demand a specified sum to a bearer or a named person or company.
Value - цінність, вартість – worth of something in terms of money or other goods for which it can be exchanged.
Volume - кількість, обсяг – the amount of any aggregate when unaffected by price changes, i.e. expressed in terms of a given period, taken no account of price charges.
Cash - готівка – 1. money in tangible form, namely coins and banknotes, in contrast to bank cheques and deposits; 2. for purposes of monetary control, notes and coins together with deposits at the central bank held by a commercial bank.
Costs - витрати, вартість, ціна – the price to be paid for an article something at which it may be bought wholesale.
Overdraft - овердрафт, кредит за поточним рахунком – a loan facility on a customer’s current account at a bank permitting the customer to overdraw up to a certain limit for an agreed period. Interest is payable on the amount of the loan facility taken up, and it may therefore be a relatively inexpensive way of financing a fluctuating requirement.
Dividend - дивіденд – the amount of a company’s profit distributed to ordinary share holders.
Standing order - постійне доручення (письмовий наказ клієнта банку про проведення серії платежів для оплати передплати, внесків за кредитом та виплат або страховим полісом, тобто для регулярних платежів) – customer’s order for payments that recur regularly, e.g. rent, rates.
Statement - витяг з банківського рахунку – excerpt from bank account: information about payment and revenue returns, balance, added into rests for a certain period of time, which is given to a client (once a quarter or half a year).


II. Answer the following questions:


1. In relation to size of transactions and types of activities, what are the differences between retail and wholesale activities undertaken by financial institutions?

2. Are there any other aspects of distinction between retail and wholesale activities? Characterize them.

3. What is the normal form of distribution channel for retail financial services?

4. What are the consequences of retail activities involving transactions of relately low value?

5. For what reason may wholesale banking activities operate on narrower margins than retail banking activities?

6. Why is the basis of classification in terms of an institution’s dominant activity rather than on its exclusive activity?


III. Find in the text the following word combinations and translate the sentences in which they are used:


High-value deposits, retail transactions, retail outlets, branch network, distribution system, telephone banking, postal account, low-value transactions, limited volume, money transmission facilities, high-value transactions, lower total costs, cheque-book accounts, electronic funds transfer, wholesale transactions, market related rates, finer margin, dominant activity, exclusive activity, retail financial services.


IV. Find English equivalents to the word combinations given below:


Поштовий рахунок, засоби переказу грошей, електронний переказ грошей, операції з великими сумами грошей, менша маржа, зменшені загальні витрати, обмежений обсяг, банківські послуги по телефону, окремі покупці, основна діяльність, додаткова діяльність, чековий рахунок, невеликі торгівельні заклади, операції з невеликими сумами грошей, загальноринкові процентні ставки, великі суми депозитів.


V. Complete the table:


verb adjective noun
to deposit deposited deposit
to offer - -
- classified -
- - regulation
to separate - -
- sizable -
- - distribution
to provide - -
- launched -
- - transmission
to limit - -
- transferred -
- - exclusion
to act - -
- related -
- - domination
to concern - -
- competitive -
- - extent
to value - -
- blurred -
- - attainment
to loan - -
- transacted -
- - gain
to engage - -
- obtained -
- - exposure


VI. Fill in the blanks from the list of words below the text:


Banks are among the most important financial institutions. The way in which a bank is organized and … is determined by its objectives. The first and most important function of a central bank is to accept … for advising the government on the making of the country's financial …, and then to see that it is carried out. The aim of commercial banks is to earn ….. Over the years banks have developed organizational …, or structures, designed to … these various roles and to supply the services their customers ….

Successfully competing in the constantly changing global business … requires market-driven strategies that are responsive to … needs and wants. Executives who do not recognize the changes occurring in the vast array of … for products and services will not be able to cope with the unprecedented … pressure in the market place. To improve competitive … they are drastically … their business and marketing … which may include downsizing, repositioning, market …, market niching, altering the busi­ness …, pricing, promotion and strategic alliances between …. With the global … in the number of competitors … face in their major markets, more and more banking firms have become … and more alert to the changing … de­mands of their customers and also to the … posed by bank and nonbank competitors. This trend forced bank managers to become more concerned with service marketing … and with profitability and growth.

Banks are usually organized to follow their … and supply the services … by them as efficiently as possible. More­over, because larger banks generally play a wider … of roles and offer more services, a bank's … is also a significant factor in determining how banks are organized".

Hundreds of banks serving small and … communities are heavily committed to attracting smaller … deposits and making consumer … and small business loans. Such banks are often called a … banks as opposed to a wholesale institutions that concentrate mainly upon serving … customers and making large … loans.

The service operations of a small bank usually are monitored by a cashier and auditor working in the accounting division and by vice-presidents heading up the bank's loan, fundraising, marketing and trust departments (if the bank offers trust services). These officers report to the senior executives of the firm, consisting of the board chairman, the president (who usually runs the bank from day to day), and senior vice-presidents, who are responsible for long-range planning and for assisting heads of the various depart­ments in solving their most pressing problems. Senior management, in turn, reports periodically (at least once each month) to members of the board of directors—the committee selected by the shareholders to set a policy and oversee the bank's performance. There is often close contact between top management and the management and staff of each line division. Such banks present a relatively low-risk working environment, but with limited opportunities for rapid advancement or for the development of new banking skills. Nevertheless, such banks place the banker close to the customer and give bank employees the opportunity to see how their activities, especially in granting loans can have a real impact on the vitality and quality of life in local communities. The organization chart of a large money bank is much more complex.

The large banks possess some … advantages over small and medium-size banks. Because the largest … serve many differ­ent markets with many different services, they are better …, both geographically and by product line, to withstand the … of a fluctuating economy. They also possess the important advantage of being able to …, financial capital at relatively low … and the professional … to focus that new capital on the most promising loans and business acquisitions.


risks challenges medium-size strategies installment expertise retail forms institution operates advantages markets increase service functions raise cost corporate commercial responsibility portfolio competitive range consumer-oriented profit diversified activities perform potential market-driven customers’ demand size companies altering environment face demanded segmentation policy


VII. Answer the following comprehension questions based on the text:


1. What does successful competition in the market of bank services presuppose?

2. What factors determine the bank’s organization and operation?

3. What is characteristic of a small community bank (as opposed to a whole sale bank)?

4. What are the potential advantages of large bank?


VIII. Sum up what the following text said about:


1. The British banking system today.

2. The main function of commercial banks.

3. The sources of making profits.

4. The services rendered by commercial banks.


Banks, like other economic institutions, have been created out of definite needs. The wide use of money and credit increased the importance of financial institutions, which do not serve only as depositories of funds, but also as sources of credit. Without the services of the banks it is unlikely that our modern industrial order could function efficiently.

Today the British banking is a complicated tripartite system like a three-layer cake. The system is headed by the Bank of England.

The other two layers are:

- the commercial or joint stock clearing banks

- specialized banking institutions such as the discount houses and merchant banks.

The commercial or joint-stock banks deal with the general public. Commercial banks are designed to make a profit for their stockholders. They receive money in the form of deposits, savings or repayments from the public, then lend it at interest to borrowers. Profit is made primarily from interest.

A bank may no necessarily be in business to make a profit. Central banks, for example, provide a country with a number of services, while development banks exist to increase the economic growth of a country and raise the living standard of its population. On the other hand, the aim of commercial banks is to earn profits. They therefore provide and develop services that can be sold at a price that will yield a profit. Obviously, banks do not keep most of the money they receive; indeed the bank will have on hand only enough to pay those customers who want to withdraw their money on a given day. A modern bank usually needs no more than 2 percent of its money in cash. Yet law inquires this same bank to deposit a sixth or seventh of its resources in non-earning funds.

Commercial banks render various services to companies and individuals. Some of the services are:

- to receive or accept from their customers the deposit of money

- to collect and transfer money both at home and abroad against deposit and current accounts

- to provide overdrafts to both personal and business customers

- to lend loans to their customers

- to exchange money

- to supply economic information and to prepare economic reviews to be published

- to make foreign exchange transactions, including spot transactions, forward transactions and swap transactions

- to issue various banker’s cards

A commercial bank which provides the same range of services year after year is less likely to be successful than one which assesses changes in the demand for its products and which tries to match products to its customer’s needs. New services are constantly being introduced and developed by commercial banks, and the full-service philosophy of many banks means that they are akin to financial supermarkets, offering a wide variety of services.


IX. Complete the sentences using your own words:


1. The aim of commercial banks is …

2. The way in which ban is organized and operated is determined …

3. Many banks offer a combination of …

4. The wholesale banking provides …

5. The retail banking provides …

6. Both types of banking have three essential functions which are …

7. These three functions are the basis …

8. They make it possible for banks to …

9. Every bank may want to offer …

10. Banks are classified according to …


X. Complete the text using these words:


accounts bank loan cheque customers’
current account debt depositors deposits
lend liabilities liquidity optimize
overdraft salary spread standing orders
returns transfer wages withdraw


Commercial banks are businesses that trade in money. They receive and hold (1)..., pay money according to (2)... instructions, (3)... money, etc.

There are still many people in Britain who do not have bank (4).... Traditionally, factory workers were paid (5)... in cash on Fridays. Non-manual workers, however, usually receive a monthly (6)... in the form of a cheque or a (7)... paid directly into their bank account.

A (8)... (US: checking account) usually pays little or no interest, but allows the holder to (9)... his or her cash with no restrictions. Deposit accounts (in the US also called time or notice accounts) pay interest. They do not usually provide (10)... (US: check) facilities, and notice is often required to withdraw money. (11)... and direct debits are ways of paying regular bills at regular intervals.

Banks offer both loans and overdrafts. A (12)... is a fixed sum of money, lent for a fixed period, on which interest is paid; banks usually require some form of security or guarantee before lending. An (13)... is an arrangement by which a customer can overdraw an account, i.e. run up a debt to an agreed limit; interest on the (14)... is calculated daily.

Banks make a profit from the (15)... or differential between the interest rates they pay on deposits and those they charge on loans. They are also able to lend more money than they receive in deposits because (16)... rarely withdraw all their money at the same time. In order to (17)... the return on their assets (loans), bankers have to find a balance between yield and risk, and (18)... and different maturities, and to match these with their (19)... (deposits). The maturity of a loan is how long it will last; the yield of a loan is its annual (20)... – how much money it pays – expressed as a percentage.




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