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Banking Systems

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14 views

Banking Systems

Uploaded by

wjustice308
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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BANKING SYSTEMS

Banking systems refer to al monetary institutions which channel funds


from lenders to borrowers. These include:
1) Commercial banks
2) Building societies
3) Finance houses ( for higher purchase sales)
4) Development banks
5) Merchant banks
6) Credit unions
7) Saving banks

Functions of commercial banks


1) Accepts deposits standing order arrangements
2) Foreign exchange transactions
3) Financial advice
4) Night safe facilities
5) Automatic teller services
6) Home banking services
7) Credit card facilities
8) Debit card facilities
9) Safety deposit box facilities

1. The public and business can deposit their wages, salaries etc. with
banks and earn interest.(1)
2. Bank makes payment on behalf of their customers from their
account for a fee. E.g. monthly premium payments to an
insurance company (1)
Bank sells travelers cheques to person who are travelling,, they also buy and sell foreign currency.
3. Banks provide financial advice and counselling to their customers
(2)
4. Business people can make deposits at any time during the night
(4)
5. Bank customers are issued with bank cards which allowed them to
access their cash. (5)
6. Some banks allow customers to access their accounts from their
home or their office using a telephone or computer to make
deposits and withdraw. (6)
7. Bank customers are issued with credit cards in which they can
purchase goods and services on credit up to a limit or to withdraw
cash through the electronic teller system.
8. Cards issued by the bank for use on automatic teller machines
now have the added facility of being used to make purchases. This
means that the card can be used to make purchases at any point
of sale and the card holders account is debited immediately.
9. Customers are allowed to store valuables such as jewelry, share
certificates etc.

The role and function of central bank


The main functions of the central bank are:
1. Bankers bank
2. Foreign exchange management
3. Debt management
4. Advisor on monetary policy
5. Issue of currency
6. Banker to the government
7. Lender of last resort
1. Bankers bank: commercial banks each maintain accounts
with central banks
2. Foreign exchange management: the central bank is
responsible for the day to day management of the exchange
rate between the local currency and overseas currencies.
3. Debt management: the central bank handles government
long term and short term borrowings, locally and abroad
4. Advisor on monetary policies: the central bank can intervene
on the local currency market in the following ways:
(i) It has the power to determine how much of the assets
of commercials banks are to be deposited with it
(ii) Bank notes- this is the rate at which the central bank is
prepared to lend to the commercial banks.

5. Issue of currency- the bank is responsible for issuing and


orienting of currencies, note and coins.
6. Banker to the government: the central bank maintains bank
accounts on behalf of the government.
7. Lender of last resort: commercial banks may borrow from
the central bank if they run short of cash.

Building societies: this institution is specially created to


assist potential home owners in attaining mortgaged.
Borrowers will save with the building societies in order to
cover a small part of the cost of the properties.
Finance houses: these are institutions engaged in the
provision of hire purchase and other forms of installment
credit.
Development banks: these banks provide funding for special
investment projects such as agriculture and tourism.
NB: Funds from international development institutions are
channeled to these banks which then dispose them to
commercial banks and credit unions.

Merchant banks : these institutions handle a variety of


financial services including :
1: acceptance of bills of exchange- this is used in
international trade in which the drawers makes a promise to
pay a drawee.
2. Issuing of bands and placing of securities

Credit unions: are operated as financial cooperates in which


the members contribute capital as savings. Loans are given
only to members and should not exceed three times the size
of the capital.

Savings bank: this usually operate through the post office


network and are located in rural areas. It is designed to
encourage small savers and is usually not a profit making
entity.

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