Banking Operations (MAIN TOPICS)
Banking Operations (MAIN TOPICS)
Banking Operations (MAIN TOPICS)
BANKING OPERATIONS
SUBMITTED BY
NAME: M. Saqib Shahzad
COURSE: International Banking
REGISTRAION NUMBER: 1552-113031
TABLE OF CONTENTS
(page-2)
(page-4)
PARTNERSHIP ACCOUNT
(page-6)
(page-9)
(page-11)
(page-24)
MORTGAGE
(page-25)
LENDING IS CRITICAL
(page-27)
(page-31)
(page-32)
(page-36)
IMF
(page-37)
PLEDGE
(page-38)
HYPOTHECATION
(page-41)
(page-42)
CLASSES OF ENDORSEMENTS
(page-43)
BANKS
Central Bank
Its primary responsibility is to maintain the stability of the national currency and money
supply, but more active duties include controlling subsidized-loan interest rates, and
acting as a lender of last resort to the banking sector during times of financial crisis
Commercial Banks
A commercial bank accepts deposits from customers and in turn makes loans, even in
excess of the deposits; a process known as fractional-reserve banking. Some banks
(called Banks of issue) issue banknotes as legal tender.
Investment Banks
Investment banks help companies and governments and their agencies to raise money
by issuing and selling securities in the primary market. They assist public and private
corporations in raising funds in the capital markets (both equity and debt), as well as in
providing strategic advisory services for mergers, acquisitions and other types of
financial transactions.
Saving Banks
For the purpose of poverty reduction program, such kind of banks are working in the
different countries with the contribution of UNO or World Bank.
In Pakistan 7 Micro Finance Banks are providing services under the SBP prudential
regulation.
Islamic Banks
Islamic banking refers to a system of banking or banking activity that is consistent with Islamic
law (Sharia) principles and guided by Islamic economics. In particular, Islamic law prohibits
usury, the collection and payment of interest, also commonly called riba in Islamic discourse
Specialized Banks
ZTBL
Specialized Banks
IDBP
Industrial Development Bank of Pakistan is one of Pakistan's oldest development financing
institution created with the primary objective of extending term finance for investment in the
manufacturing sector and SME Sector of the economy.
Specialized Banks
SME Bank
Financing of projects.
however they are typically not allowed to take deposits from the general public and
have to find other means of funding their operations such as issuing debt instruments.
In India, most NBFCs raise capital through Chit Funds.
Investment company
Leasing Companies
A lease or tenancy is the right to use or occupy personal property or real property given
by a lessor to another person (usually called the lessee or tenant) for a fixed or
indefinite period of time, whereby the lessee obtains exclusive possession of the
property in return for paying the lessor a fixed or determinable consideration (payment)
Q-2
TYPES OF BANK FUNDS
Checking account
A checking account offers easy access to your money for your daily
transactional needs and helps keep your cash secure.
Customers can use a debit card or checks to make purchases or pay bills.
Accounts may have different options or packages to help waive certain monthly
service fees.
Savings account
A savings account allows you to accumulate interest on funds youve saved for
future needs.
Savings accounts vary by monthly service fees, interest rates, method used to
calculate interest, and minimum opening deposit.
Understanding the accounts terms and benefits will allow for a more informed
decision on the account best suited for your needs.
Certificates of deposit, or CDs, allow you to invest your money at a set interest
rate for a pre-set period of time.
CDs often have higher interest rates than traditional savings accounts because
the money you deposit is tied up for the life of the certificate which can range
from a few months to several years.
Be sure you do not need to draw on those funds before you open a CD, as early
withdrawals may have financial penalties.
Money market accounts are similar to savings accounts, but they require you to
maintain a higher balance to avoid a monthly fee.
Where savings accounts usually have a fixed interest rate, these accounts have
rates that vary regularly based on money markets.
Money market accounts can have tiered interest rates, providing more
favorable rates based on higher balances.
Some money market accounts also allow you to write checks against your
funds, but on a more limited basis.
These plans are useful if your employer doesnt offer retirement benefits or
you want to save more than your employer-sponsored plan allows.
These accounts come in two types: the traditional IRA and Roth IRA.
The Roth IRA is popular because the funds can be withdrawn tax-free in many
situations.
Both accounts have contribution limits and other requirements you may need
to discuss with your tax advisor before choosing your account.
Q-3
PARTNERSHIP ACCOUNT
FEATURES
I have written some main features of partnership account below:
1.
Agreement
There must be agreement between the parties concerned. This is the most important
characteristics of partnership. Without agreement partnership cannot be formed. "No
agreement no partnership." But only competent persons are entitled to make a contract.
There are some provisions contained in the partnership agreement. These are determined
clearly before the commencement of business. But it differs from business to business. This
documents may be written or oral. But it must be written so that disputes may be settled
according to the provisions of agreement.
2.
Number of Partnership
There should be more than one person to form a partnership. But there is restriction for the
maximum number of partners. In case of ordinary business, the partners must not exceed 20
and in case of banking must not exceed 10 (before nationalization).
3.
Business
The object of the formation of partnership is to carryon any type of business. It may be
manufacturing or merchandise type small or large scale business. But it should not be illegal
business in the country concerned.
4.
Profit motive
The basic motive of the formation of partnership is to earn profit. This profit is distributed
among the partners according to agreed proportion. If there is loss it will be sustained by all
partners except the minor.
5.
Conduct of Business
The business of partnership is conducated by all the partners or any or them acting for all. But
each partner is allowed to participate in the management by law.
6.
Entity
It has no separate entity apart from its members. It is not independent of the partners. Law has
not granted it any legal entity.
7.
Unlimited liability
This is the prominent feature of partnership that the liability of each partner is not limited to
the amount invested but his private property is also liable to pay the business obligations.
8.
Investment
Each partner contributes his share in the capital according to the agreement. Some persons
become partners without investing any capital to the business. But they devote their time,
energy and ability to their business instead of capital and receive profit.
9.
Transferability of share
There is restriction to transfer the share from one partner to another person without the
consent of existing partners. So the investment in the partnership remains confined into few
hands.
10. Position
One partner is an agent as well as principal to other partner. He can bind the other person by
his act. In the position of an agent he can make contract with another person or parties on
behalf of his concerned firm.
11. Mutual Confidence
The business of the partnership cannot be conducted successfully without the element of
mutual confidence and cooperation of partners. So the members must have trust and
confidence in each other.
12. Free Operation
There are no strict rules and regulations to control the partnership activities in our country i.e.
no restriction for the audit of accounts, submission of various reports and other copies to any
government authority. So this organization may operate freely without any interference.
Q-3 (ii)
Silent Features of a Joint Stock Company
Incorporated association
Forming a public company at least 7 persons and for forming a private company at least
2 persons are required.
It exists only in the contemplation of law, and therefore, has no physical form.
However, law grants it the right to act as a natural being through a board of directors
elected by the shareholders.
(i) in his individual capacity cannot bind the company in any way.
(ii) Can enter into contract with the company and can be an employee of the company,
(iii) cannot be held liable for the acts of the company even if he holds the entire share
capital.
(ii) Can sue and be sued in its own name by its members as well as outsiders, (iii) life of
the company is independent of the life of its members.
Perpetual succession
A company has unending life quite independent of the life of its members.
The death, insolvency, or exit of any shareholder has no effect on the life of a company.
During the war all the members of one private company, while in general meeting,
were killed by a bomb.
But the company survived; not even a hydrogen bomb could have destroyed it.
The proprietary business almost comes to an end if anything happens to the proprietor.
Even when it is passed on to the successors, they may not be competent to operate it.
Common Seals
Requires that a company must have a common seal with its name engraved on it.
Any document bearing the common seal of the company, and signed by two directors,
legally binds the company.
Transferability of shares
In a private accompany, however, some restrictions on the right of transfer of shares are
imposed through its articles.
Limited liability
For satisfaction of the debts of the company, the personal property of the shareholder
cannot be used. A shareholders liability is limited to the amount unpaid on their shares,
irrespective of the magnitude of losses suffered.
In sole-proprietorship, the liability of the owner is unlimited, that is, even to the extent
of his personal possessions. The nature of partners liability is also the same.
Q-3 (iii)
Silent Features of ACCOUNTS OF CLUBS
First 10,000 cash paid in or withdrawn each month at our counters is FREE
200 FREE transactions per month
No monthly account fee
Convenience of a debit card
Online and telephone banking
Free transactions in Europe
Monthly statements
FREE presentation cheques for special occasions
Q-3 (iv)
SILENT FEATURES OF ACCOUNTS OF TRUSTS
Bank account for the project funds shall be opened only in a nationally recognized bank
or any other bank authorized by the central bank of the country.
Necessary authorization to open any bank account or alter its manner of operation
would need to be got in writing from the necessary authority.
Separate bank account can be opened depending upon the project need.
A staff that has access to bank account and cash account is not entitled to be an
authorized signatory.
The authority to sign should lie with selected executive members of society.
The bank is authorized to undertake any written instructions, signed by two of the
signatories, for transacting any financial business from time to time.
The Finance/Accounts person has to take the matter with the Competent Authority and
procure in writing the obtaining necessary resolution.
When it is decided to close a bank account, the following actions should be completed:
Transfer balance in the account (leaving the minimum amount required) to the
other bank account.
After receipt of the resolution, deliver it to the bank under receipt and transfer
the balance to another account.
Confirm closure of the bank account and transfer of balance to the competent.
MORTGAGE
Definition:
Mortgage is a loan taken to purchase property and guaranteed by the same property
example of a mortgage is the loan you took out when you bought your house.
Types:
Fixed-rate
mortgage loans have the same interest rate for the entire repayment term. Because of
this, the size of your monthly payment will stay the same, month after month, and year
after year. It will never change. This is true even for long-term financing options, such as
the 30-year fixed-rate loan. It has the same interest rate, and the same monthly
payment, for the entire term.
Adjustable-rate
mortgage loans (ARMs) have an interest rate that will change or "adjust" from time to
time. Typically, the rate on an ARM will change every year after an initial period of
remaining fixed. It is therefore referred to as a "hybrid" product. A hybrid ARM loan is
one that starts off with a fixed or unchanging interest rate, before switching over to an
adjustable rate. For instance, the 5/1 ARM loan carries a fixed rate of interest for the
first five years, after which it begins to adjust every one year, or annually. That's what
the 5 and the 1 signify in the name.
The United States Department of Agriculture (USDA) offers a loan program for rural borrowers
who meet certain income requirements. The program is managed by the Rural Housing Service
(RHS), which is part of the Department of Agriculture. This type of mortgage loan is offered to
"rural residents who have a steady, low or modest income, and yet are unable to obtain
adequate housing through conventional financing." Income must be no higher than 115% of the
adjusted area median income [AMI].
A conforming loan
is one that meets the underwriting guidelines of Fannie Mae or Freddie Mac,
particularly where size is concerned. Fannie and Freddie are the two governmentcontrolled corporations that purchase and sell mortgage-backed securities (MBS).
Simply put, they buy loans from the lenders who generate them, and then sell them to
investors via Wall Street. A conforming loan falls within their maximum size limits, and
otherwise "conforms" to pre-established criteria.
A jumbo loan, on the other hand, exceeds the conforming loan limits established by
Fannie Mae and Freddie Mac. This type of mortgage represents a higher risk for the
lender, mainly due to its size. As a result, jumbo borrowers typically must have excellent
credit and larger down payments, when compared to conforming loans. Interest rates
are generally higher with the jumbo products, as well.
LENDING IS CRITICAL
REASONS
Character
We always check to see how well you have managed your personal debt in the past.
Personal references, business experience and work history can sometimes substitute,
but a strong personal credit history proves that you have the willingness and the
discipline to repay past debts and future obligations.
Credit
Wells Fargo uses a credit-reporting agency to look at your payment history with trade
suppliers and other business obligations. We also look to see that your payments to
other financial institutions are current.
Cash Flow
Wells Fargo is a cash flow lender. That means we look at the cash flow of your business
as the primary repayment source for the money we lend you. How do we compute cash
flow? A company's cash flow is its net profit, plus its non-cash expenses depreciation
and amortization. Our rule of thumb is that for every $1 in total loan payments, your
business must generate $1.50 in cash flow.
Capacity
We wants to know how you would be able to repay your loan in case there was a
sudden downturn in your business. Do you have the capacity to convert other assets to
cash, either by selling them or borrowing against them? Your ability to do this could
include real estate holdings, certificates of deposit, stocks and other sources of savings
that can be liquidated quickly.
Collateral
we make both secured and unsecured loans. With a secured loan, you pledge something
that you own as collateral. It might be personal assets like certificates of deposits or
stocks, or business assets like real estate, inventory, equipment or accounts receivable.
PRINCIPLES OF LENDING:
Principal decision-maker
If you are, we will ask you to complete and submit the loan application. If there are
multiple owners of your business, at least two of them will need to submit their
information with the application.
Financial Performance
Your financial performance over time is usually a pretty good measure of where you've
been and where you're going. To get conventional bank financing from Wells Fargo, it
helps to have been in business for at least three years.
Bankruptcy
If either you or your business has declared bankruptcy within the last 10 years, chances
are Wells Fargo will not lend to you unless you have repaid all of your creditors. The
best way for you to re-establish a good credit record is to repay your creditors as soon
as possible.
Consistent payments
We use a consumer credit-reporting agency to see how you have handled your personal
debt. While an occasional late or missed payment is understandable, if you consistently
pay late, you may not qualify for business credit. Sometimes you just need to set up an
accounting system to ensure that you pay all your bills on schedule. If you find that you
are consistently running short of cash, then you should take steps to trim expenses,
increase sales revenues or raise equity for your business.
Legal judgment
In the case of a tax lien or a legal judgment against you or your firm, the beneficiary of
any settlement stands first in line for payment. The best thing to do before you apply for
business credit is to pay and release all liens and judgments, and settle all suits.
Sources
Credit cards, lines of credit and loans are a key part of every individual's credit record. A
strong credit history proves you have the willingness and discipline to repay debts. Lack
of a credit record makes it much more difficult to borrow money. If you do not have
credit today, secure credit soon and use it wisely. Good places to start include trade
credit, credit cards, auto loans, home equity and lines of credit.
Profitability
Tax returns are a quick way to determine if you've shown a profit in the last few years. If
your business is not profitable, it may be difficult for you to make the payments on your
credit line or loan. So, if your business is not profitable, examine your expenses for
opportunities to cut back and look at your sales for opportunities to increase revenues.
Maybe you can sell more to a current customer. Or you might need more customers.
Cash flow
Wells Fargo looks at the cash your business generates as the primary repayment source
for the money we lend you. We compute the cash in your business by adding non-cash
expenses (such as depreciation and amortization) to net profits. If your business doesn't
generate $1.50 in cash for every $1 in debt payments, then you will need to look for
ways to decrease expenses or increase sales to boost the cash in your business
Q-6
Detail Note
Q-7 (a)
INDORSEMENT
Definition:
The act of the owner or payee signing his/her name to the back of a check, bill of exchange or
other negotiable instrument so as to make it payable to another or cashable by any person
TYPES:
General endorsement
If the instrument is payable to John Smith, the endorsement in blank is his simple signature
without additional words, i.e., John Smith. It specifies no particular endorsee, and thereafter is
payable to bearer and may be negotiated by delivery alone.
Special endorsement
Also known as direct endorsement and endorsement in full. This endorsement specifies the
person to whom or to whose order the instrument is payable and the endorsement of such
endorsee is necessary to the further negotiation of the instrument.
Conditional endorsement
This is a form of endorsement in which the endorser imposes some condition upon the
transferee, e.g., Pay Adam Smith upon the satisfactory performance of his contract, (signed)
Jane White. Where an endorsement is conditional, a party required to pay the instrument may
make payment to the endorsee or his transferee, whether the condition has been fulfilled or
not; but any person to whom an instrument so endorsed is negotiated will hold the same, or
the proceeds thereof, subject to the rights of the person endorsing conditionally.
Qualified endorsement
Without Recourse, or similar wording.
The qualified endorsement does not destroy the negotiability of the instrument. The without
recourse endorser makes the limited warranties found in Section 3-417, Uniform Commercial
Code. A qualified endorsement is one directing it to be paid to a specific person or to be
otherwise restricted, such as an indication of "for deposit only".
Restrictive endorsement
A restrictive endorsement is a blank or special endorsement accompanied by words which
either (1) prohibit the further negotiation of the instrument; or (2) constitute the endorsee the
agent of the endorser; or (3) vest the title in the endorsee in trust for or to the use of some
other person.
Q-7 (b)
FEATURES OF INDORSEMENT
Payee
The payee, of course, is the first to authorize action with a signature.
Date
The endorsement of the depository bank appears below this so that the date, legible in
dark purple or black ink.
Branch identification
A branch identification and sequence number often times accompany the endorsement.
Collecting Bank
Q-8 (i)
Short Notes
Bank nationalization
Bank nationalization, in the most practical form, means giving the U.S. government the
power to control banks. That could mean taking control of the public shares, to the power to
pick and install new management and boards of directors, and set corpotate strategy. The
shocks of the credit crisis last fall spurred lawmakers to semi-nationalize the banking sector;
nearly 314 institutions have already signed over some of their shares and other securities to
the Treasury in return for $350 billion in government aid.
IMPACTS
Q-8 (ii)
Asian Development Bank was established on August 22, 1996. It was ratified by 15 countries. It
started functioning in December 1996. Its headquarter in Manila.
Members :-
Members of ADB are more than 48. Thirty members are from Asian cou8ntries. Membership
of ADB is open for all the members of UNO or its any specialized agency. USA, UK and 15 West
European countries are its members.
Management :A board of governors manages its operation. There are 12 directors in the board of governors.
President of the bank the chairman of the board. Each director of the board holds the office
for 2 years.
Objectives :The objective of ADB is to increase the rate of economic growth in the Asian member
countries.
ADB has established the various other funds like Asian Development Fund (ADF). Multi
purpose special fund (MPSF) nad agricultural special fund (ASF) provide technical assistance on
priority basis
Q-8 (III)
IMF
Background
The IMF was the outcome of Bretton woods conference of 1944. The main purpose of IMF
were to provide exchange stability, temporary assistance to countries falling short of foreign
exchange and take international measure for curing the adverse balance of payment. IMF is a
pool of central bank reserves and national currencies which are available to its members
under certain conditions.
Objectives
Q-8 (iv)
short note
PLEDGE
Definition:
A bailment of goods as security for the payment of a debt or performance of a promise. The
bailer is called the pawnor or pledgor and the bailee is called Pawnee or the pledge.
Pledge distinguished from Bailment and Mortgage
A pledge is thus distinguishable for an ordinary bailment: (i) in a pledge, the bailment made as
security for the due discharge of a legal obligation. In ordinary bailment, there is no such idea.
(ii)On a bailment of goods, what passes to the bailee is right of possession of goods bailed; on a
pledge, the pledge obtains a special property in the goods pledged (c). (iii) A bailee has a right
of lien on the goods bailed, but no right of sale. A pledge has such a right under certain
circumstances. The above points also distinguished a pledge for a lien.
A pledge must also be distinguished for a mortgage of movable. There is no specific statutory
provision either in the Contract Act or in the transfer of Property Act, for a mortgage of
movable (also some time known as hypothecation). Such transactions however are not on that
account invalid (d). A mortgage of movables is distinguished from a pledge as follows:
(i) a mortgage of movables transfer to the mortgagee, the ownership of the property, with only
a right of redemption left in the mortgagor. A pledge transfer to the pledge only a right of
possession and a qualified right of sale.
(ii) A pledge requires delivery of possession in order to valid, a mortgage of movables does not
require delivery of possession as an essential pre-requisite.
(iii) a mortgage of movables has the rights of foreclosure and sale, the pledge has only the
limited right of sale. Notice that a mortgage of movables doesnt require either writing or
registration to be effective in law but can been made orally. In the last mentioned case Beamen
J. pointed out the difficulties which this anomaly gives rise to. Though such a mortgage is valid
without transfer of possession a subsequent dishonest pledge of the same property by the
mortgagor would give the pledge a priority over the mortgage, if the pledge has acted in good
faith and without notice of prior mortgage.
Pledge should been distinguished from what is known as hypothecation. In the first case,
possession of goods is actually delivered to the creditor or Pawnee. In the second case, it
remains with the debtor, with the right or power to the creditor, to cause the goods to be sold,
in order to be paid his claim out of the proceeds. In both case however, the property cannot be
transferred to a third party without the express consent or permission of the creditor.
Q-8 (v)
HYPOTHECATION
Basics
When investors need money but cannot secure a traditional loan, they use their first mortgage
as collateral to get the money they need. The investor retains ownership of the mortgage note
and there is no title transfer to the lender.
Advantages
Generally, hypothecations carry a higher interest rate, but save investors money when they
don't have to sell their first mortgage at a steep discount. Additionally, many investors use
hypothecation of mortgages for a short period of time. The higher interest-rate payment ends
up being far less than the loss they would take if they sold the mortgage at a steep discount.
Disadvantages
When investors hypothecate a mortgage, the lender basically puts a lien on the mortgage note.
This means that if the investors fail to make the payments on the hypothecated mortgage note,
the lender can sell the note to cover losses.
That the defendant, acting in good faith believing that he has the right to the money,
has changed his position since the overpayment e.g. the defendant has given the money
to charity
estoppel: the claimant is barred from claiming the money back because he has done
something such that it is inequitable for him to recover the money
the defendant has delayed inordinately in discovering the mistake (laches) this is the
equitable equivalent to statutory limitation periods
the time for bringing the tenant's claim has expired under the Limitation Act 1980: the
limitation period is 6 years from when the claimant discovered the mistake or could,
with reasonable diligence, have discovered it. The cause of action for a claim in
restitution arises when the payment under the mistake is made; each subsequent
payment under the same mistake, therefore, gives rise to a fresh cause of action. Thus,
the limitation period may have expired for some earlier payments but not for later
payments. This defense must be raised by the defendant (landlord). It is not automatic
that a claim is held to be statute-barred.
Q-10
Detail Note
CLASSES OF ENDORSEMENTS