Which of the following examples of improved banking technology are mentioned either directly or indirectly in the text?

a) ATMs

b) smart cards

c) credit cards

d) telephone banking

e) electronic banking

 

XIII. Match these terms with their definitions:

 

1) net interest margin 2) provisions 3) return on equity 4) money transmission system

a) money reserved to cover bad debts b) profit as a percentage of shareholders' capital c) difference between interest income and interest payments d) method of transferring funds from one person to another

 

XIV. Replace the underlined items with words or phrases from the text that have a similar meaning.

 

1. Banks are affected by the state of the UK economy in genera l.

2. The UK has a very established loan market.

3. It's difficult for a large bank to increase loan and deposit volumes.

4. The UK's seven principal banks set aside about £6.5bn of bad debt provision.

5. Banks have closed thousands of branches over the last ten years.

6. Many routine banking tasks are dealt with by computer.

7. A bank branch is expensive to operate.

8. Technologically, British banks are behind their French competitors.

9. Few people change banks in Britain.

10. Most UK banks still make huge profits.

XV. Choose, the best explanation for each of these words or phrases from the text:

1) troubled

a) worried

b) pleased

2) rash trading

a) trading without enough care and consideration

b) trading in large volumes

3) let its operating costs run out of control

a) allowed its costs to go over the budget

b) allowed its costs to be checked by external auditors

4) customer inertia

a) customers don't want to move or change anything

b) customers expect a lot of improvements in service

5) stripping out costs

a) adding to costs

b) removing costs

6) reaped most of the benefits

a) collected most of the benefits

b) lost most of the benefits

 

XVI. Find a word or phrase in the text that has a similar meaning.

 

1 total amounts or quantities

v..........

2 system of local offices spread around the country

b...................n...................

3 highest level recorded over a period

p...................

4 designed so as to be of maximum benefit to the consumer

c...................-f...................

5 when the value of a deposit is added to an account balance

c...................

6 banks with the biggest share of the market

l...................b...................

 

XVII. Match the first half of each sentence with the most appropriate second half. Notice the words are used in each sentence to mark a contrasting idea. (These words are in italics.)

1) Barclays Bank had a troubled year

2) Banks make a profit on their net interest margin

3) British banks have introduced a range of technically-advanced services

4) Canadian customers get deposits credited instantaneously

 

a) while UK customers have to wait a few days.

b) yet it managed to make a lot of profit.

c) but it is difficult for them to widen their margins.

d) but they are still behind the French in electronic banking.

 

If possible, find the annual results of a bank in your country and report on its profitability.

How do British banks differ from banks in your country in the way they make their profits?

XVIII. Prepare a brief summary of the text:

 

Savings Banks and the National Giro

 

There are two major savings banks, the National Savings Bank which is operated by the Post Office on behalf of the Department for National Savings and the Trustee Savings Dank. Both banks provided deposit facilities for small savers and these are collected at 21 000 post offices (in the case of the NSB) and at 1 500 branches of the Trustees Saving Bank. The Trustees Savings Bank now provides a current ac­count service (i.e. payments may be made by cheque); the National Savings Bank does not provide such a service, but the National Giro provides money transmission services. All of the assets of the National Savings Bank and the greater part of the assets of the Trustees Savings Bank consist of government securities (i.e. loans to the government).

The National Giro is managed by the Post Office and commenced operations in 1968. Its aim is to provide a cheap, simple and quick money transmission service by making use of the existing network of post offices. All the records are kept, and the processing is carried out, at the computerised centre at Bootle. People holding giro accounts are provided with three basic services:

1. Transfers to other account holders. These are carried out by posting giro transfer forms to the computer centre. These transfers are free although there is a small charge for stationery.

2. Deposits. Deposits can be made in cash at any post office or by cheque. Deposits into one's own account arc tree, but a charge is made when people pay into some other person s account.

3. Payments. An account holder can draw-cash through post offices or can make payment to a non-account holder by means of a postal cheque. In each case, as long as the account is in credit, no charge is made for these services.

The giro system is not new, most western European countries have been such systems for many years. In the UK the system started slowly and losses were made in early years. It has since broadened its services to include deposit accounts, personal loans and limited overdraft facilities and cheque guarantee cards. It is now operating profitably and is widely used for local authority rent payments and for the payments of social security benefits.

 

Complete this paragraph using these words:

assets cash interest

liquid maturity reserve

Because a commercial bank can lend most of the money deposited with it to other borrowers, who in turn may lend it to another borrower, each sum of money deposited in a bank is multiplied several times. To ensure the safety of the banking system, central banks impose (1)........... requirements, obliging commercial banks to deposit a certain amount of money with the central bank at zero (2)........... Central banks in different countries also impose different "prudential ratios" on commercial banks. These are ratios between deposits and liquid (3)........... that are considered sufficient to meet demands for (4)............ (A bank's assets are its loans, which should, in theory, all be paid hack one day, and its liabilities are the customers' deposits, which can all be withdrawn one day.) For example, a bank's capital ratio is between its capital and reserves on the one hand, and its total assets on the other. The reserve asset ratio is between deposits with a (5)........... of under two years, called "eligible liabilities," and reserve assets, which include cash and assets that are (6)........... - i.e. quickly convertible into cash - such as reserve deposits held by the central bank, and securities such as treasury bills.

 

 

Study and discuss the information given in the text. The questions below it may be helpful to you.

 

The changing environment and activities

Of the UK retail banks

 

The analysis of the activities and of the summary balance sheet of the retail banks provides an overview of what the banks currently do, but not of how this has changed over time and is likely to change in the future. This section provides a brief overview of the way in which the environment, and hence the activities, of the retail banks has changed in recent years.

Competition

The major change in the environment within which the retail banks operate is that it has become much more competitive. This has come about not only as a consequence of deregulation within financial markets, but also as a consequence of innovation by participants within those markets. The result of this has been that the domination of the market for banking services by the retail banks in the UK has come under attack. With regard to the market for personal customers, a major source of increased competition has been the building societies which, mainly as a consequence of the changes brought about by the Building Societies Act 1986, have started to offer a much more comprehensive range of banking services including, on a limited basis, personal loans for purposes other than house purchase. It has also been suggested that the general public is now much more financially sophisticated than say, 10 years ago, so that they are better able to evaluate alternative financial products and are more willing to move funds between different financial institutions to lake advantage of better interest rates or other facilities.

Personal customers

The ability of the retail banks to attract funds from their personal customers was seen to be under threat, and they have responded in a number of ways:

- Instead of offering just the one type of savings account, the 7-day deposit account, a range of savings accounts with competitive interest rates are now offered with, often, improved access to the funds by the customer.

- Improved current account facilities, in the form of interest-bearing cur­rent accounts, free banking subject to certain (more generous) criteria, facilities such as automatic overdrafts, and the provision of debit cards.

- Improved the access to current account funds, by means of automated teller machines, longer opening hours and home banking facilities.

- Expanded advertising and marketing to increase customer awareness and to improve the image of the retail banks.

- Purchases of building societies by some banks: Lloyds bought Chelten­ham & Gloucester; Abbey National bought National & Provincial and the Bank of Ireland intends to buy Bristol & West.

- Merger - in the autumn of 1996, Lloyds Bank announced its purchase of TSB Bank and they intend to merge the two businesses in perhaps 1998; meanwhile the separate branch networks continue.

Corporate customers

In the market for corporate customers, the changing environment has also manifested itself primarily in the form of increased competition, brought about again by deregulation. The deregulation of the capital markets has enabled corporate borrowers to raise funds from sources other than banks, while in­creased competition has extended the range of alternative means of finance available from the capital market and has lowered the cost of such finance relative to bank finance.

The response by the retail banks to the increased competition for corporate customers has taken a number of forms:

- Improvement of existing facilities for corporate customers. Given that the cost of funds lies largely outside a bank's control, however, their ability to improve existing facilities is necessarily limited and is concentrated on increasing the flexibility offered to such customers.

- Greater involvement in the securities markets. For some retail banks this has meant acquiring firms operating as brokers or market-makers within the capital markets, but they have also become increasingly involved in merchant and investment banking via their subsidiaries and directly in­volved in, for example, managing issues of commercial paper.

- Development of particular segments of the market for corporate custom­ers, and in this respect small- and medium-sized businesses have become the focus of attention, since the ability of such businesses to take advan­tage of deregulation and increased competition within the capital market is limited by their size.

For both the market for personal customers and that for corporate customers. an additional response to the changing environment has been a movement away from their financial intermediary services towards the whole range of non-intermediary financial services. These activities do nut require the banks to obtain and then onlend funds, allowing the banks to benefit from the interest margin: rather, they generate lees or commissions for the bank con­cerned and to some extent are subject to less competition. Many of these activities enable the banks to make more intensive use of their branch net­works and hence to lower average costs. They include insurance broking, unit trust operations, stockbroking and estate agency operations. They are sometimes called 'non-funds based products'.

 

1. Examine the importance of the Building Societies Act 1986 for UK retail banks.

2. It is sometimes suggested that the general public have become more sophisti­cated in their financial requirements. How might this fact have affected retail banking operations?

3. Discuss some of the improvements which retail banks have made to their facilities in recent years in order lo enhance their position in attracting personal customers.

4. List some of the ways in which retail banks have attempted to improve their facilities for corporate customers in recent years.

5. For what reasons might retail banks move into the provision of non-intermedia­tion financial services?

 

XIX. Complete the text using these words:

cash dispensers current account investment advice overdraft

cheque deposit account loan pension

credit card foreign currency mortgage standing order

 

My salary is paid directly into a low-interest (1) ______. I can withdraw money from automatic (2) ______ with a cashcard, so 1 hardly ever actually go into a bank. I pay regular, monthly bills by way of a (3) _____: the bank pays them according to my instructions, and debits my account.

I pay irregular bills by (4) _____ - Nearly everyone I know in Britain has a chequebook, but when I lived on the Continent, I found that people hardly used them. They often paid cash, or paid bills at a post office with a paying-in slip.

I also have a (5) _____ which is useful for ordering things by post or on the telephone, and for travelling worldwide. I also use it in shops and restaurants, but try not to spend more than I can pay when the bill comes a month later, as this is a very expensive way of borrowing money. The annual interest is exorbitant - well over 20%.

I used to have a (6) ______ in a building society which paid higher interest than the current account at the bank, but had restrictions as to how and when I could withdraw my money. But then we bought a flat. I got a 90% (7) ______ from the building society: i.e. we had to pay a deposit of 10% with our own savings.

That is why I have no more money and no more deposit account. In fact I have arranged an (8) _______ with the bank, which means I can occasionally withdraw more money than is actually in my account. Interest is calculated daily. Last year I asked the bank for a (9) _______ to buy a car. I (only!) wanted two months salary, but they refused. Since I don't like the high interest rates that the garage's hire purchase people charge. I bought a cheap second-hand car instead.

I always use the hank to buy (10) ______ when 1 go abroad, because their rates are better than the bureaux de change. I don't like travellers' cheques, and I've never had my money stolen - yet.

My bank is also always trying to sell me a private (11) ______ plan, for when I retire, but I'm not interested. They also keep offering me (12) ______ about shares, bonds, unit trusts, mutual funds, and so on. They don't seem to realize that if 1 could afford to buy all these things, I wouldn't need an overdraft.

 

XX. Make an overview of the following texts:

 

CURRENT ACCOUNTS

 

This is perhaps the most common and the most popular account. It is from this account that most services are available and other accounts may be obtained. The customer may pay in any funds he wishes, whether it is in cash form, cheques, dividend or interest warrants, drafts from govern­ment departments or, indeed, any other recognized negoti­able instrument. The customer may also withdraw funds without formality on demand, usually by drawing a cheque, payable to himself or 'cash' and withdrawing funds from over the bank counter or by the use of a cash dispenser card.

When a person, corporate or not, opens a current account-assuming funds have been cleared and references are satisfactory - he is given free of charge a cheque book, paying-in book, and, at the manager's discretion, a cheque card. Additionally, a statement is sent by the bank to the customer at regular intervals, at least twice a year, free of charge. Most customers who use their current account regularly will request a monthly statement.

Currently, banks will operate a current account free of charge providing it is in credit - that is there is an amount of cleared funds on the account. Any overdraft or payment of cheques against funds which have not finally been cleared will be penalized by a charge against the account. The amount of the debit against the customer's account will depend on (1) the number of items passed during the period, (2) the amount overdrawn and (3) current interest rates.

Before leaving current accounts, a word must be mentioned about statements. Banks must take extreme care before despatching statements since any error, either debit or credit, can involve the bank in a loss. For example, any debit unauthorized by the customer cannot be debited to his account. A cheque bearing a forged signature can never be debited. A cancelled standing order, debited in error, must be refunded. A credit passed in error to a customer's account could also mean a loss to the bank, especially when that customer has in good faith and quite innocently spent the money. In the case of Lloyds Bank Ltd v. Brooks (1950), Lady Brooks was credited with a series of dividend warrants to which she was not entitled. The bank attempted to recover these funds, but as she acted in good faith and relied upon the balance, she won the case. It is therefore vital for bank staff to ensure that the entries on a statement are correct before a statement is sent out. The statement should be sent to the correct address; otherwise, if the envelope is opened by a stranger, there could be a breach of secrecy.