Free banking

From Wikipedia, the free encyclopedia

Jump to: navigation, search

The neutrality and factual accuracy of this article are disputed. Please see the relevant discussion on the talk page. (April 2008)

Public finance
This article is part of the series: Finance and Taxation
Taxation
Income tax · Payroll tax CGT · Stamp duty · LVT Sales tax · VAT · Flat tax Tax, tariff and trade Tax haven
Tax incidence
Tax rate · Proportional tax Progressive tax · Regressive tax Tax advantage
Taxation by country[show] Australia • British Virgin Islands Canada • China • Colombia France • Germany • Hong Kong India • Indonesia • Ireland Netherlands • New Zealand Peru • Russia Singapore • Switzerland Tanzania • United Kingdom United States • European Union v • d • e Tax rates around the world Tax revenue as % of GDP
Economic policy
Monetary policy Central bank • Money supply Gold standard
Fiscal policy Spending • Deficit • Debt
Policy-mix
Trade policy Tariff • Trade agreement
Finance
Financial market Financial market participants Corporate · Personal Public · Regulation
Banking
Fractional-reserve · Full-reserve Free banking · Islamic banking
view • talk • edit • project

This article is about an economic theory. "Free banking" also refers to the provision of indirectly-funded transactional accounts, which often rely on bank charges.

Free banking is a theory of banking in which commercial banks and market forces control the provision of banking services. Under free banking, government central banks and currency boards do not exist, and banking-specific government regulations are either non-existent or not as strict. Banking services may include bank note issue, cheque accounts, deposit acceptance, and/or money lending.

Contents [hide] 1 Institutions of Free Banking 2 Characteristics of Free Banking 3 History of Free Banking 4 Advocates 5 See also 6 References 7 External links

[edit] Institutions of Free Banking

Free banking institutionally is:^{[citation needed]}

1. Freedom to form banks
2. Freedom to issue banknotes (promissory notes issued by a bank payable to bearer on demand).
3. Freedom to accept money on deposit to current account, and to pay and collect cheques for customers
4. Freedom to borrow money on term deposit and other forms of secured and unsecured borrowing
5. Freedom to lend money and otherwise invest the bank's assets
6. Freedom to provide guarantees, documentary letters of credit, performance bonds and to incur other off balance sheet exposures.

Vera Smith classical definition of free banking (in contrast to central banking) is:

"A régime where note-issuing banks are allowed to set up in the same way as any other type of business enterprise, so long as they comply with the general company law. The requirement for their establishment is not special conditional authorisation from a Government authority, but the ability to raise sufficient capital, and public confidence, to gain acceptance for their notes and ensure the profitability of the undertaking. Under such a system all banks would not only be allowed the same rights, but would also be subjected to the same responsibilities as other business enterprises. If they failed to meet their obligations they would be declared bankrupt and put into liquidation, and their assets used to meet the claims of their creditors, in which case the shareholders would lose the whole or part of their capital, and the penalty for failure would be paid, at least for the most part, by those responsible for the policy of the bank. . . . No bank would have the right to call on the Government or on any other institution for special help in time of need. No bank would be able to give its notes forced currency by declaring them to be legal tender for all payments. . . . A central bank, on the other hand, being founded with the aid either direct or indirect of the Government, is able to fall back on the Government for protection from the disagreeable consequences of its acts. The central bank, which cannot meet its obligations, is allowed to suspend payment . . . while its notes are given forced currency." (Smith, Vera. [1936] 1990. The Rationale of Central Banking and the Free Banking Alternative. Minneapolis, Minn.: LibertyFund., pp. 169–70)

[edit] Characteristics of Free Banking

Free banking theorists consider that free banking is characterized by:^{[citation needed]}

1. Competitive issue of redeemable bearer currency instead of central bank notes monopoly. Historically this meant banknotes (promissory notes issued by a bank payable to bearer on demand) issued in the form of paper or metal tokens, but cryptography and modern communications technology mean that it can now take the form of electronic tokens, too.
2. Mutual acceptance by banks of each other's notes at par^{[citation needed]}, and indirect redemption of notes by banks through note exchanges.
3. In the same way competitive provision of current account services, but cooperation, too, in clearing of inter-bank payments between such accounts through clearing houses and settlement banks.
4. Development of short term credit markets to allow banks with excess reserves to invest them at interest, and banks in need of reserves to borrow funds short term.
5. Development of, and bank investment in, marketable debt securities, providing investment opportunities that can be liquidated at short notice, and acting as collateral for short term inter-bank borrowing and lending.
6. There's no legal tender, that is, no legally enforced currency. Everybody is free to accept or refuse a trade in the currency they choose. A government central bank can still exist and can issue currency but its currency can only be mandatory for Government-related payments, like taxes.
7. No enforced Fractional reserve ratio. Banks are free to float their fractional reserve ratio, or even sell financial products with differing fractional reserves, and differing restrictions on withdrawal rules, adjusting the interest offered on the account in response.

[edit] History of Free Banking

Banking has been more regulated in some times and places than others, and some times and places it has hardly been regulated at all, giving some experiences of more or less free banking.

1. Australia. In the late 19th century, banking in Australia was subject to little regulation. There were four large banks with over 100 branches each, that together had about half of the banking business, and branch banking and deposit banking were much more advanced than other more regulated countries such as the UK and USA. Banks accepted each other's notes at par. Interest margins were about 4% p.a. In the 1890s a land price crash caused the failure of many smaller banks and building societies. Bankruptcy legislation put in place at the time gave bank debtors generous terms they could restructure under, and most of the banks used this as a means to restructure their debts in their favor, even though they didn't really need to.
2. Switzerland.^[1] In the 19th Century several Swiss cantons deregulated banking, allowing free entry and issue of notes. Cantons retained jurisdiction over banking until the enactment of the Federal Banking Law of 1881. The centralisation of note issue reduced the problem of the existence of "a bewildering variety of notes of varying qualities ... at fluctuating exchange rates."^[2]
3. Scottish Free Banking.^[3] This period lasted between 1716 and 1845. The Bank of Scotland, the original Scottish bank charter and The Royal Bank of Scotland, chartered by England, issued competitive currencies. This resulted in a "currency war" in 1727. The result was a cooperative equilibrium, where both banks agreed to redeem. This area of study has been developed further by Lawrence H. White, in books such as Free Banking in Britain: Theory, Experience and Debate 1800-1845.
4. United States.^[4] Between 1837 and 1862, known as the Free Banking Era, only state-chartered banks existed. They could issue bank notes against specie (gold and silver coins) and the states regulated their reserve requirements, interest rates for loans and deposits, the necessary capital ratio. The banking system during this period was notoriously unstable, with many bank failures, and bank notes were discounted depending on the perceived creditworthiness of the issuing bank, that is, there was no single, broadly accepted currency or unit of account^{[citation needed]}. Then, from 1863 to 1913, known as the National Banks Era, state-chartered banks were still operating under a free banking system. Some scholars have found that the system was mostly stable ^[5].
5. Sweden.^[6] Sweden had two periods of free banking, 1830-60 and 1860-1902. Following a bank crisis in 1857, there was a rise in popular support for private banks and private money issuers (especially Stockholms Enskilda Bank, founded in 1856). A new bank law was adopted by parliament in 1864, deregulating the interest rate. The following decades marked the height of the Swedish free banking era. After 1874, no new private banks were founded. In 1901, issuing of private money was prohibited. Work on the Swedish free banking era has been done by Per Hortlund and Erik Lakomaa. Erik Lakomaa (The Quarterly Journal of Austrian Economics, Summer 2007), has demonstrated that the Swedish experiment in free banking was successful. It reduced booms and busts. Only one bank went bankrupt for 70 years, an event related to fraud and not to excessive lending as has happened wherever central banking has been practiced.

There is speculation that with electronic currencies free banking can evolve into Anonymous internet banking. The implications of this for the monetary system are unknown, and much of the rigorous theory in this area has been abandoned for a "wait and see" attitude.^{[citation needed]}

[edit] Advocates

This section does not cite any references or sources. Please help improve this section by adding citations to reliable sources. Unverifiable material may be challenged and removed. (August 2008)

• Friedrich Hayek
• Pascal Salin
• George Selgin
• David D. Friedman ^[7]

[edit] See also

• Henry Meulen
• Richard Salsman

[edit] References

1. ^ Briones, Ignacio and Hugh Rockoff, "Do Economists Reach a Conclusion on Free-Banking Episodes?", Econ Journal Watch, Vol.2, No.2 (August 2005), pp.279-324.
2. ^ The Central Bank and the Financial System, Charles Albert Eric Goodhart, p. 211.
3. ^ "Do Economists Reach a Conclusion on Free-Banking Episodes?". op. cit.
4. ^ Ibid
5. ^ Microeconomics of Banking, De Xavier Freixas, Jean-Charles Rochet, p. 261.
6. ^ "Do Economists Reach a Conclusion on Free-Banking Episodes?", op. cit.
7. ^ http://www.cato.org/pubs/pas/pa017.html

[edit] External links

• Free Banking FAQ by Daniel Ust
• Free Banking Homepage (Wayback Machine Cache)
• Reinventing Money
• Automatic Stabilizing Mechanisms Under Free Banking (pdf) by Kevin Dowd
• Mutual Banking (1974 reprint of 1946 Modern Publishing edition), Mutual Banking (1850 edition) by William Batchelder Greene
• [1] Vera Smith's 1936 book, Rationale for Central Banking

Loan

From Wikipedia, the free encyclopedia

Jump to: navigation, search

For other uses, see Loan (disambiguation).

Finance

Financial markets Bond market Stock (Equities) Market Forex market Derivatives market Commodity market Money market Spot (cash) Market OTC market Real Estate market Private equity

Market participants Investors Speculators Institutional Investors

Corporate finance Structured finance Capital budgeting Financial risk management Mergers and Acquisitions Accounting Financial Statements Auditing Credit rating agency Leveraged buyout Venture capital

Personal finance Credit and Debt Employment contract Retirement Financial planning

Public finance Tax

Banks and banking Fractional-reserve banking Central Bank List of banks Deposits Loan Money supply

Financial regulation Finance designations Accounting scandals

History of finance Stock market bubble Recession Stock market crash Histoy of private equity

This box: view • talk • edit

A loan is a type of debt. This article focuses exclusively on monetary loans, although, in practice, any material object might be lent. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower.

The borrower initially does receive an amount of money from the lender, which they pay back, usually but not always in regular installments, to the lender. This service is generally provided at a cost, referred to as interest on the debt. A loan is of the annuity type if the amount paid periodically (for paying off and interest together) is fixed.

A borrower may be subject to certain restrictions known as loan covenants under the terms of the loan.

Acting as a provider of loans is one of the principal tasks for financial institutions. For other institutions, issuing of debt contracts such as bonds is a typical source of funding.

Legally, a loan is a contractual promise between two parties where one party, the creditor, agrees to provide a sum of money to a debtor, who promises to return the money to the creditor either in one lump sum or in parts over a fixed period in time. This agreement may include providing additional payments of rental charges on the funds advanced to the debtor for the time the funds are in the hands of the debtor (interest).

Contents [hide] 1 Types of loans 1.1 Secured 1.2 Unsecured 2 Abuses in lending 3 United States taxes 4 Income from discharge of indebtedness 5 See also 6 References

[edit] Types of loans

[edit] Secured

A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan.

A mortgage loan is a very common type of debt instrument, used by many individuals to purchase housing. In this arrangement, the money is used to purchase the property. The financial institution, however, is given security — a lien on the title to the house — until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it.

In some instances, a loan taken out to purchase a new or used car may be secured by the car, in much the same way as a mortgage is secured by housing. The duration of the loan period is considerably shorter — often corresponding to the useful life of the car. There are two types of auto loans, direct and indirect. A direct auto loan is where a bank gives the loan directly to a consumer. An indirect auto loan is where a car dealership acts as an intermediary between the bank or financial institution and the consumer.

A type of loan especially used in limited partnership agreements is the recourse note.

A stock hedge loan is a special type of securities lending whereby the stock of a borrower is hedged by the lender against loss, using options or other hedging strategies to reduce lender risk.^{[citation needed]}

A pre-settlement loan is a non-recourse debt, this is when a monetary loan is given based on the merit and awardable amount in a lawsuit case. Only certain types of lawsuit cases are eligible for a pre-settlement loan.^{[citation needed]} This is considered a secured non-recourse debt due to the fact if the case reaches a verdict in favor of the defendant the loan is forgiven.

[edit] Unsecured

Unsecured loans are monetary loans that are not secured against the borrowers assets. These may be available from financial institutions under many different guises or marketing packages:

• credit card debt
• personal loans
• bank overdrafts
• credit facilities or lines of credit
• corporate bonds

The interest rates applicable to these different forms may vary depending on the lender and the borrower. These may or may not be regulated by law. In the United Kingdom, when applied to individuals, these may come under the Consumer Credit Act 1974.

[edit] Abuses in lending

Predatory lending is one form of abuse in the granting of loans. It usually involves granting a loan in order to put the borrower in a position that one can gain advantage over him or her. Where the moneylender is not authorised, it could be considered a loan shark.

Usury is a different form of abuse, where the lender charges excessive interest. In different time periods and cultures the acceptable interest rate has varied, from no interest at all to unlimited interest rates. Credit card companies in some countries have been accused by consumer organisations of lending at usurious interest rates and making money out of frivolous "extra charges". ^[1]

Abuses can also take place in the form of the customer abusing the lender by not repaying the loan or with an intent to defraud the lender.

[edit] United States taxes

Most of the basic rules governing how loans are handled for tax purposes in the United States are uncodified by both Congress (the Internal Revenue Code) and the Treasury Department (Treasury Regulations — another set of rules that interpret the Internal Revenue Code).^[2] Yet such rules are universally accepted.^[3]

1. A loan is not gross income to the borrower.^[4] Since the borrower has the obligation to repay the loan, the borrower has no accession to wealth.^[5]

2. The lender may not deduct the amount of the loan.^[6] The rationale here is that one asset (the cash) has been converted into a different asset (a promise of repayment).^[7] Deductions are not typically available when an outlay serves to create a new or different asset.^[8]

3. The amount paid to satisfy the loan obligation is not deductible by the borrower.^[9]

4. Repayment of the loan is not gross income to the lender.^[10] In effect, the promise of repayment is converted back to cash, with no accession to wealth by the lender.^[11]

5. Interest paid to the lender is included in the lender’s gross income.^[12] Interest paid represents compensation for the use of the lender’s money or property and thus represents profit or an accession to wealth to the lender.^[13] Interest income can be attributed to lenders even if the lender doesn’t charge a minimum amount of interest.^[14]

6. Interest paid to the lender may be deductible by the borrower.^[15] In general, interest paid in connection with the borrower’s business activity is deductible, while interest paid on personal loans are not deductible.^[16] The major exception here is interest paid on a home mortgage.^[17]

[edit] Income from discharge of indebtedness

Although a loan does not start out as income to the borrower, it becomes income to the borrower if the borrower is discharged of indebtedness. ^[18] Thus, if a debt is discharged, then the borrower essentially has received income equal to the amount of the indebtedness. The Internal Revenue Code lists “Income from Discharge of Indebtedness” in Section 62(a)(12) as a source of gross income.

Example: X owes Y $50,000. If Y discharges the indebtedness, then X no longer owes Y $50,000. For purposes of calculating income, this should be treated the same way as if Y gave X $50,000.

For a more detailed description of the “discharge of indebtedness”, look at Section 108 (Cancellation of Debt (COD) Income) of the Internal Revenue Code

Broker

From Wikipedia, the free encyclopedia

(Redirected from Brokerage)

Jump to: navigation, search

For other uses, see Broker (disambiguation).

"Brokerage" redirects here. For the not-for-profit organisation "the Brokerage", see The Brokerage Citylink.

A broker is a party that mediates between a buyer and a seller. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Distinguish agent: one who acts on behalf of a principal. A brokerage or a brokerage firm is a business that acts as a broker. A sales person working for a securities or commodity brokerage firm is popularly (but incorrectly) called a "broker." A broker in that context is, strictly speaking, an exchange member who actually executes the purchase or sale order in the pit, on the exchange, as a service to the client of the firm for which that salesman works.

[edit] Types of brokers

• Broker-dealer
• Capacity broker
• W.O.W broker
• Commodity broker
• Computer broker
• Construction equipment broker
• Contract Hire Broker (see Business Contract Hire)
• Forex Broker
• Insurance broker
• Investment broker
• IT broker
• Marriage broker
• Mortgage broker
• Off Business broker
• Oil broker
• Peace broker
• Prime broker
• Real estate broker
• Rigs brokers
• Ship broker
• Stock broker
• Yacht charter brokers

Wire transfer

From Wikipedia, the free encyclopedia

Jump to: navigation, search

Wire transfer is a method of transferring money from one entity to another. A wire transfer can be made from one entity's bank account to the other entity's bank account, and by a transfer of cash at a cash office.

Contents [hide] 1 Process 2 Regulation 3 Security 4 Methods 4.1 Western Union 4.2 International 4.3 United States 5 References 6 External links

[edit] Process

Bank wire transfers are often the most expedient method for transferring funds between bank accounts. A bank wire transfer is effected as follows:

• The person wishing to do a transfer (or someone who he has appointed and empowered financially to act on his behalf) goes to the bank and gives the bank the order to transfer a certain amount of money. IBAN and BIC code are given as well so the bank knows where the money needs to be sent to.
• The sending bank transmits a message, via a secure system (such as SWIFT or Fedwire), to the receiving bank, requesting that it effect payment according to the instructions given.
• The message also includes settlement instructions. The actual transfer is not instantaneous: funds may take several hours or even days to move from the sender's account to the receiver's account.
• Either the banks involved must hold a reciprocal account with each other, or the payment must be sent to a bank with such an account, a correspondent bank, for further benefit to the ultimate recipient.

[edit] Regulation

Bank transfer is the most common payment method in Europe, with several million transactions processed each day.^{[citation needed]} Debit cards are used extensively to pay in stores, while monthly bills are usually paid with a direct transfer (by cellular phone or Internet, or at the bank or an ATM). In 2002, the European Commission relegated the regulation of the fees that a bank may charge for payments in euros between European Union member countries down to the domestic level,^[1] resulting in very low or no fees for transfers within the Eurozone; wire transfers between this zone and external areas can be expensive.^{[citation needed]}

In the United States, domestic wire transfers are governed by Federal Regulation J^[2] and by Article 4A of the Uniform Commercial Code.^[3]

[edit] Security

Bank-to-bank wire transfer is considered the safest international payment method. Each account holder must have a proven identity. Chargeback is unlikely, although wires can be recalled. Information contained in wires is transmitted securely through encrypted communications methods. The price of bank wire transfers varies greatly, depending on the bank and its location; in some countries, the fee associated with the service can be costly.

Wire transfers done through cash offices are essentially anonymous and are designed for transfer between persons who trust each other. It is unsafe to send money by wire to an unknown person to collect at a cash office: the receiver of the money may, after collecting it, simply disappear. This scam has been used often, especially in so-called Nigerian letters, also called advance fee fraud or 419 scams.

International transfers involving the United States are subject to monitoring by the Office of Foreign Assets Control (OFAC), which monitors information provided in the text of the wire to ascertain whether money is being transferred to terrorist organizations or countries or entities under sanction by the United States government. If a financial institution suspects that funds are being sent from or to one of these entities, it must block the transfer and freeze the funds.^[4]

[edit] Methods

[edit] Western Union

One of the largest companies that offer wire transfer is Western Union, which allows individuals to transfer or receive money without an account with Western Union or any financial institution.^[5] Concern and controversy about Western Union transfers have increased in recent years, because of the increased monitoring of money-laundering transactions, as well as concern about terrorist groups using the service, particularly in the wake of the September 11, 2001 attacks. Although Western Union keeps information about senders and receivers, some transactions can be done essentially anonymously, for the receiver is not always required to show identification.^[6]

[edit] International

Most international transfers are executed through SWIFT, a co-operative society, founded in 1974 by seven international banks, which operates a global network to facilitate the transfer of financial messages. Using these messages, banks can exchange data for funds transfer between financial institutions. SWIFT's headquarters are in La Hulpe, on the outskirts of Brussels, Belgium. The society also acts as a United Nations–sanctioned international-standards body, for the creation and maintenance of financial-messaging standards. See SWIFT Standards.

Each financial institution is provided an ISO 9362 code, also called a Bank Identifier Code (BIC) or SWIFT Code. These codes generally are eight characters long.^[7] For example: Deutsche Bank is an international bank, with its head office in Frankfurt, Germany, the SWIFT Code for which is DEUTDEFF:

• DEUT identifies Deutsche Bank.
• DE is the country code for Germany.
• FF is the code for Frankfurt.

Using an extended code of 11 digits (if the receiving bank has assigned extended codes to branches or to processing areas) allows the payment to be directed to a specific office. For example: DEUTDEFF500 would direct the payment to an office of Deutsche Bank in Bad Homburg.

European banks making transfers within the European Union also use the International Bank Account Number, or IBAN.

[edit] United States

Banks in the United States use SWIFT to make payments to banks in other countries.

Domestic bank-to-bank transfers are conducted through the Fedwire system, which uses the Federal Reserve System and its assignment of routing transit number, which uniquely identify each bank.

[edit] References

1. ^ Regulation (EC) No 2560/2001. European Parliament and the Council of the European Union
2. ^ Regulation J - Check Collection and Funds Transfer. BankersOnline.com
3. ^ Section 4A of Universal Commercial Code. Legal Information Institute.
4. ^ OFAC facts
5. ^ Western Union Money Transfer Options
6. ^ Can Western Union Keep On Delivering?. BusinessWeek
7. ^ About BIC. Swift - BIC Portal

Bancassurance

From Wikipedia, the free encyclopedia

Jump to: navigation, search

Bancassurance is the selling of insurance (assurance) products by a bank. The usage of the word picked up as banks and insurance companies merged and banks sought to provide insurance, especially in markets that have been liberalised recently. It is a controversial idea, and many feel it gives banks too great a control over the financial industry.

In some countries, bancassurance is still largely prohibited, but it was recently legalized in countries such as the United States, when the Glass-Steagall Act was repealed after the passage of the Gramm-Leach-Bliley Act.

Privatbancassurance is a wealth management process pioneered by Lombard International Assurance and now used globally. The concept combines private banking and investment management services with the sophisticated use of life assurance as a financial planning structure to achieve fiscal advantages and security for wealthy investors and their families.

Examples:

• ING Group

This article does not cite any references or sources. Please help improve this article by adding citations to reliable sources. Unverifiable material may be challenged and removed. (January 2008)

This economics or finance-related article is a stub. You can help Wikipedia by expanding it.

BANCASSURANCE FOR INDIAN INSURANCE SECTOR....BY RITESH BHUSARI MBA FINANCE (UNIVERSITY OF PUNE)

MEANING:

Bancassurance simply means selling of insurance products by banks. In this arrangement, insurance companies and banks undergo a tie-up, thereby allowing banks to sell the insurance products to its customers. This is a system in which a bank has a corporate agency with one insurance company to sell its products. By selling insurance policies bank earns a revenue stream apart from interest. It is called as fee-based income. This income is purely risk free for the bank since the bank simply plays the role of an intermediary for sourcing business to the insurance company.

ORIGIN & GLOBAL SCENARIO:

Bancassurance has grown at different places and taken shapes and forms in different countries depending upon demography, economic and legislative prescriptions in that country. It is most successful in Europe, especially in France, from where it started, Italy, Belgium and Luxembourg. The concept of bancassurance is relatively new in the USA. As mentioned above bancassurance growth differs due to various reasons in different countries. The Glass-Steagall Act of 1933 prevented the banks of the USA from entering into alliance with different financial services providers, thereby putting a barrier on bancassurance. As a result of this life insurance was primarily sold through individual agents, who focussed on wealthier individuals, leading to a majority of the American middle class households being under-insured. With the US Government repealing the Act in 1999, the concept of bancassurance started gaining grounds in the USA also. Coming to Asia, it has been estimated that bancassurance would contribute almost 16% of the life premium in the Asian markets in the year 2006 primarily due to the growth expected in India and China.

INDIAN SCENARIO:

Banking is fully governed by RBI &

• Insurance sector is by IRDA

And bank assurance being the combination of two sectors comes under the purview of both the regulators. Each of the regulators has given out detailed guidelines for banks getting into insurance sector.

Coming to India, bancassurance is a new buzzword in India. It originated in India in the year 2000 when the Government issued notification under Banking Regulation Act which allowed Indian Banks to do insurance distribution. It started picking up after Insurance Regulatory and Development Authority (IRDA) passed a notification in October 2002 on 'Corporate Agency' regulations. As per the concept of Corporate Agency, banks can act as an agent of one life and one non-life insurer. Currently bancassurance accounts for a share of almost 25-30% of the premium income amongst the private players in India.

SWOT Analysis of Bancassurance in India:

On order to implement the bancassurance in our country a lot of steps we have to taken.

(A) Top professionals will have to be hired. (B) We have to study the Indians nature regarding insurance. (C) Study about lower middle as well as upper class of society & how much they are eager to adopt insurance. (D) Favorable & easy policies for the people. (E) High capital investment in infrastructure development particularly in Information Technology & Telecommunication is required (F) Creation of research & development cell is very important & adaptive task. (G) We have to study about the SWOP analysis of world in the field of bancassurance & we can take this study as base.

Advantages of Banassurance: Bancassurance is a tool, which is beneficial to bank, customer & Insurer at a time. There are certain benefits of bancassurance are given.

(1) From the banks point of view: -

(A) By selling the insurance product by their own channel the banker can increase their income. (B) Banks have face-to-face contract with their customers. They can directly ask them to take a policy. And the banks need not to go any where for customers. (C) The Bankers have extensive experience in marketing. They can easily attract customers & non-customers because the customer & non-customers also bank on banks. (D) Banks are using different value added services life-E. Banking tele banking, direct mail & so on they can also use all the above-mentioned facility for Bankassurance purpose with customers & non-customers.

(II) From the Insurer Point of view:

(A) The Insurance Company can increase their business through the banking distribution channels because the banks have so many customers. (B) By cutting cost Insurers can serve better to customers in terms lower premium rate and better risk coverage through product diversification.

(III) From the customers' point of view: Product innovation and distribution activities are directed towards the satisfaction of needs of the customer. Bancassurance assists customers in terms of reduction price, diversified product quality in time and at their doorstep service by banks

ADVANTAGE TO BANKS:

Bancassurance provides various advantages to banks, insurers and the customers. For the banks, income from bancassurance is the only non interest based income. Interest is market driven and fluctuating and quite narrowing these days. Banks do not get great margins because of the competition This is why more and more banks are getting into bancassurance so as to improve their incomes. Increased competition also makes it difficult for banks to retain their customers. Banassurance comes as a help in this direction also. Providing multiple services at one place to the customers means enhanced customer satisfaction. For example, through bancassurance a customer gets home loans along with insurance at one single place as a combined product. Another important advantage that bancassurance brings about in banks is development of sales culture in their employees.

As for the insurance company the advantage that bancassurance provides is evident. The insurance company gets improved geographical reach without additional costs. In India around 67,000 branches are there for PSU banks alone. If all 67,000 branches sell the insurance products one can see the reach. This is one method of penetrating the market.

BANK REFFERAL:

There is also another method called 'Bank Referral'. Here the banks do not issue the policies, they only give the database to the insurance companies. The companies issue the policies and pay the commission to them. That is called referral basis.

EMERGING MARKET:

India's rural market has huge potential that is still untapped by the insurance companies. Setting up their own networks entails such a huge cost, that no company would be interested in doing so. Bancassurance again comes as an answer. It helps the insurance companies to tap the market at a much lower cost. As for the customer the competitive nature of the Indian market ensures that the reduction in costs would result in benefits in terms of lower premium rates being passed on to him.

CONCLUSION:

With the opening up of insurance sector and with so many players entering the Indian Insurance Industry it is required by Insurance Companies to come up with well established infrastructure facilities with good call centre service to attract and provide information to customer regarding different good policies & their premium pay scheme.

The penetration level of life insurance in the Indian market is abysmally low at 2.3% of GDP with only 8% of the total population currently insured. With almost half of the population likely to be in the 'wage earner' bracket by 2010, there is every reason to be optimistic that bancassurance in India will play a long inning.

Where legislation ahs allowed bancassurance had mostly been a phenomenal success and although slow to gain pace, is now taking of across Asia, especially now that banks are starting to become more diverse financial institution and the concept of universal banking is being adopted.

In the field of bancassurance banks will bring a customer database, leverage their name, recognition & reputation of both local and regional levels. If they are using personal contact with customers and non-customers then only they can success in the field of bancassurance.

But the proper implementation of bancassurance is still facing so many hurdles because of poor manpower management, lack of call centers, no personal contact with customers, inadequate incentives to agents and unfullfilment of other essential requirements.

Finally we can say that the bancassurance would mostly depend on how well insurers and bankers understanding is with each other and how they are capturing the opportunity and how better service they are providing to their, customers. Let us you all pay more attention towards the policies and enjoy the service provide by banks and Insurance Companies by the mode of Bancassurance.

EXAMPLE:

BAJAJ ALLIANZ GENERAL INSURANCE INDIA

Financial services

From Wikipedia, the free encyclopedia

Jump to: navigation, search

This article is in a list format that may be better presented using prose. You can help by converting this section to prose, if appropriate. Editing help is available. (September 2006)

The examples and perspective in this article may not represent a worldwide view of the subject. Please improve this article or discuss the issue on the talk page.

Financial services refer to services provided by the finance industry.

The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are banks, credit card companies, insurance companies, consumer finance companies, stock brokerages, investment funds and some government sponsored enterprises. As of 2004, the financial services industry represented 20% of the market capitalization of the S&P 500 in the United States.^[1]

Contents [hide] 1 History of financial services 1.1 In the United States 2 Banks 2.1 Banking services 2.2 Private banking 2.3 Capital market banks 2.4 Bank cards 2.5 Credit card machine services and networks 3 Foreign Exchange Services 4 Investment services 4.1 Asset management 4.2 Hedge fund management 4.3 Custody services 5 Insurance 5.1 Insurance brokerage 5.2 Insurance underwriting 5.3 Reinsurance 6 Intermediation or advisory services 6.1 Stock brokers (private client services) and discount brokers 7 Private equity 8 Venture capital 9 Angel investment 10 Conglomerates 11 Financial crime 11.1 UK 12 Market share 13 Brand equity 14 Glossary 15 Acronyms 16 See also 17 Notes 18 References

[edit] History of financial services

[edit] In the United States

The term "financial services" became more prevalent in the United States partly as a result of the Gramm-Leach-Bliley Act of the late 1990s, which enabled different types of companies operating in the US financial services industry at that time to merge.^{[citation needed]} In the USA almost every company now which previously described themselves as a bank, insurance company, or brokerage house, now describes themselves in some way as a financial services institution.

Companies usually have two distinct approaches to this new type of business. One approach would be a bank which simply buys an insurance company or an investment bank, keeps the original brands of the acquired firm, and adds the acquisition to its holding company simply to diversify its earnings. Outside the U.S., e.g., in Japan, non-financial services companies are permitted within the holding company. In this scenario, each company still looks independent, and has its own customers, etc.

In the other style, a bank would simply create its own brokerage division or insurance division and attempt to sell those products to its own existing customers, with incentives for combining all things with one company.

[edit] Banks

Main article: Bank

A "commercial bank" is what is commonly referred to as simply a "bank". The term "commercial" is used to distinguish it from an "investment bank", a type of financial services entity which, instead of lending money directly to a business, helps businesses raise money from other firms in the form of bonds (debt) or stock (equity).

[edit] Banking services

The primary operations of banks include:

• Keeping money safe while also allowing withdrawals when needed
• Issuance of checkbooks so that bills can be paid and other kinds of payments can be delivered by post
• Provide personal loans, commercial loans, and mortgage loans (typically loans to purchase a home, property or business)
• Issuance of credit cards and processing of credit card transactions and billing
• Issuance of debit cards for use as a substitute for checks
• Allow financial transactions at branches or by using Automatic Teller Machines (ATMs)
• Provide wire transfers of funds and Electronic fund transfers between banks
• Facilitation of standing orders and direct debits, so payments for bills can be made automatically
• Provide overdraft agreements for the temporary advancement of the Bank's own money to meet monthly spending commitments of a customer in their current account.
• Provide Charge card advances of the Bank's own money for customers wishing to settle credit advances monthly.
• Provide a check guaranteed by the Bank itself and prepaid by the customer, such as a cashier's check or certified check.
• Notary service for financial and other documents

[edit] Private banking

Main article: Private banking

The providing of banking services to very wealthy individuals and families. Many financial services firms require a person or family to have a certain minimum net worth to qualify for private banking services. ^[2]

Services are provided by a bank or a division of a financial services company.

This table displays the results of the Ultra high net worth (US$30m+) category of the 2006 private banking awards:^[3]

Rank 06	Company	Rank 05
1.	JPMorgan Private Bank	1
2.	Goldman Sachs	3
3.	UBS	2
4.	Citigroup Private Bank	4
5.	Credit Suisse Private Banking	5
6.	HSBC Private Bank	7
7.	Pictet & Cie	6
8.	Merrill Lynch	n
9.	N M Rothschild & Sons	8
10.	ABN Amro Private Banking	10

Ranking: 'n' denotes 'nominated'

• State Bank of India
• ICICI

[edit] Capital market banks

Capital market banks underwrite debt and equity, assist company deals (advisory services, underwriting and advisory fees), and restructure debt into structured finance products. Prominent amongst them include:

• Barclays Capital
• Citigroup Global Markets (formerly Salomon Brothers)
• Credit Suisse First Boston
• Deutsche Bank
• Goldman Sachs
• ING Group
• JPMorgan Chase
• Lehman Brothers
• Merrill Lynch
• Morgan Stanley
• Needham & Company
• Nomura
• UBS
• Gleacher Shacklock
• D.A. Davidson & Co.

See also: Mergers & acquisitions

[edit] Bank cards

Bank cards include both credit cards and debit cards. Bank Of America is the largest issuer of bank cards.^{[citation needed]}

• American Express
• Barclaycard
• Capital One
• Discover Card
• HSBC
• Intelligent Finance
• MasterCard
• Washington Mutual
• VISA

[edit] Credit card machine services and networks

Companies which provide credit card machine and payment networks call themselves "merchant card providers". These include:

• BA Merchant Services (Bank of America)
• First Data Corporation
• Heartland Payment Systems
• US Bank
• PBZ Card
• Barclays
• HSBC
• HBOS (Halifax Bank of Scotland)
• RBS (Royal Bank of Scotland)

[edit] Foreign Exchange Services

Foreign exchange services are provided by many banks around the world. Foreign exchange services include:

• Currency Exchange- where clients can purchase and sell foreign currency banknotes
• Wire transfer- where clients can send funds to international banks abroad
• Foreign Currency Banking- banking transactions are done in foreign currency

and more

[edit] Investment services

[edit] Asset management

Main article: Investment management

Asset management is the term usually given to describe companies which run collective investment funds.

The following is Global Investor’s 2005 ranking of the top 10 investment managers by assets under management:^[4]

Rank	Company	Assets under management (US$million)	Country
1.	Barclays Global Investors	1,400,491	UK
2.	State Street Global Advisors	1,367,269	US
3.	Fidelity Investments	1,299,400	US
4.	Capital Group Companies	1,050,435	US
5.	The Vanguard Group	852,000	US
6.	Allianz Global Investors	790,513	Germany
7.	JPMorgan Asset Management	782,646	US
8.	Mellon Financial Corporation	738,294	US
9.	Deutsche Bank Asset Management	723,366	Germany
10.	Northern Trust Global Investments	589,800	US

[edit] Hedge fund management

Hedge funds often employ the services of "prime brokerage" divisions at major investment banks to execute their trades. Prominent hedge funds include:

• BlackRock, Inc.
• Bridgewater Associates
• Caxton Associates
• Citadel Investment Group
• Deutsche Bank
• Renaissance Technologies
• SAC Capital Partners
• Soros Fund Management
• Man Investments
• Fortress Management

[edit] Custody services

Custody services and securities processing is a kind of 'back-office' administration for financial services. Assets under custody in the world was estimated to $65 trillion at the end of 2004.^[5] Firms engaged in custody services include:

• State Street Corporation
• The Bank of New York Mellon
• JPMorgan Chase
• PNC Financial Services Group
• Kas Bank

[edit] Insurance

Main article: Insurance

[edit] Insurance brokerage

Insurance brokers shop for insurance (generally corporate property and casualty insurance) on behalf of customers. Significant companies in this sector of the financial services market include:

• IBS Insurance Broking Services
• Aon Corporation
• Marsh & McLennan Companies
• Wachovia
• Wells Fargo
• Hiscox

[edit] Insurance underwriting

Personal lines insurance underwriters actually underwrite insurance for individuals, a service still offered primarily through agents, insurance brokers, and stock brokers. Underwriters may also offer similar commercial lines of coverage for businesses. Activities include insurance and annuities, life insurance, retirement insurance, health insurance, and property & casualty insurance. Some well known insurers include:

• Allianz
• Allied Insurance
• Allstate
• AIG
• Aviva
• AXA
• Berkshire Hathaway
• Chubb Corporation
• CGNU
• Independent Order of Foresters
• Geico
• Life Insurance Corporation of India
• MetLife
• Mutual of Enumclaw
• Nationwide Insurance
• New York Life
• Safeco
• State Farm
• Zurich Financial Services

[edit] Reinsurance

Reinsurance is insurance sold to insurers themselves, to protect them from catastrophic losses. Firms in this sector include:

• Berkshire Hathaway
• Lloyd's of London
• Munich Re
• Swiss Re
• Aon
• Towers Perrin

See also: Underwriting

[edit] Intermediation or advisory services

[edit] Stock brokers (private client services) and discount brokers

Stock brokers assist investors in buying or selling shares. Primarily internet-based companies are often referred to as discount brokerages, although many now have branch offices to assist clients. These brokerages primarily target individual investors. Examples of discount brokerages include:

• Ameritrade
• Charles Schwab
• Edward Jones
• E-Trade
• Fidelity Investments
• Scottrade
• Tradeking
• FolioFN
• Sharebuilder
• Zecco.com

Full service and private client firms primarily assist execute trades and execute trades for clients with large amounts of capital to invest, such as large companies, wealthy individuals, and investment management funds. Examples include:

• Deutsche Bank
• Goldman Sachs
• Merrill Lynch
• Morgan Stanley
• Smith Barney
• UBS AG

[edit] Private equity

Main article: Private equity

Private equity funds are typically closed-end funds, which usually take controlling equity stakes in businesses that are either private, or taken private once acquired. Private equity funds often use leveraged buyouts (LBOs) to acquire the firms in which they invest. The most successful private equity funds can generate returns significantly higher than provided by the equity markets

[edit] Venture capital

Main article: Venture capital

Venture capital is a type of private equity capital typically provided by professional, outside investors to new, high-potential-growth companies in the interest of taking the company to an IPO or trade sale of the business.

[edit] Angel investment

Main article: Angel investor

An angel investor or angel (known as a business angel or informal investor in Europe), is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital.

[edit] Conglomerates

A financial services conglomerate is a financial services firm that is active in more than one sector of the financial services market e.g. life insurance, general insurance, health insurance, asset management, retail banking, wholesale banking, investment banking, etc.

A key rationale for the existence of such businesses is the existence of diversification benefits that are present when different types of businesses are aggregated i.e. bad things don't always happen at the same time. As a consequence, economic capital for a conglomerate is usually substantially less than economic capital is for the sum of its parts.

[edit] Financial crime

[edit] UK

Fraud within the financial industry costs the UK an estimated £14bn a year and it is believed a further £25bn is laundered by British institutions.^[6]

[edit] Market share

The financial services industry constitutes the largest group of companies in the world in terms of earnings and equity market cap. However it is not the largest category in terms of revenue or number of employees. It is also a slow growing and extremely fragmented industry, with the largest company (Citigroup), only having a 3 % US market share.^[7] In contrast, the largest home improvement store in the US, Home Depot, has a 30 % market share, and the largest coffee house Starbucks has a 32 % market share.

[edit] Brand equity

Each year, BusinessWeek and Interbrand publish their 100 Best Global Brands study, ranking the financial value of brands. The following are the financial services companies in this list, ranked by this study for 2006:^[8]

Rank	Brand	Brand value (US$billion)	Annual change	2005 Rank	Country of origin
11	Citigroup	21.46	7%	12	U.S.
14	American Express	19.64	6%	14	U.S.
21	Merrill Lynch	13.00	8%	25	U.S.
28	HSBC	11.62	11%	29	U.K.
33	J.P. Morgan	10.21	8%	34	U.S.
36	Morgan Stanley	9.76	0%	33	U.S.
37	Goldman Sachs	9.64	13%	37	U.S.
42	UBS	8.73	15%	44	Switzerland
87	ING	3.47	9%	87	Netherlands

[edit] Glossary

Glossary for reading financial services reports:

• Asset sensitive - a financial institution that has a negative duration of equity may also be described as having a positive gap or as being asset sensitive.
• Charge-offs - written off debt
• Cost of funds - the cost of loan capital, the cost of funding assets; free liabilities include interest free checking accounts
• Cost-to-Income Ratio (CIR, C/I ratio) - An important measure of the efficiency of financial institutions, this refers to their operating expenses divided by their operating revenues. [Euromoney: cited below]
• Diversification - In portfolio management, refers to the variety of securities within a portfolio in terms of its geographical or sectoral spread, or in terms of its credit quality. In general, risk is reduced as portfolio diversification increases. [Euromoney: cited below]
• Equity-Linked Annuity - An annuity paying a fixed minimum rate, qualifying for bonus payments linked to the performance of an equity benchmark such as the S&P500.

^[9]

• Liability sensitive - the inverse of asset sensitive.
• Operating leverage - a simple indication of a firm' s earnings strength; usually measuring the operating income as a percentage of gross income

[edit] Acronyms

• NCL - net credit losses - cost of charge-offs, written off debt^[10]
• NCL rate - net credit loss rate - the percentage of the lending portfolio that is not expected to be repaid^[11]
• NII - net interest income - interest income less interest cost
• NIM - net interest margin - margin between interest income and interest cost
• NPA - non performing assets - interest bearing assets not paying interest

[edit] See also

• Accounting scandals
• BFSI
• European Financial Services Roundtable
• Financial analyst
• Financial markets
• Financialization
• Government sponsored enterprise
• International Monetary Fund
• Investment management
• Misleading financial analysis
• Thomson Financial League Tables

[edit] Notes

1. ^ Contrary Investor
2. ^ http://www.investorwords.com/5946/private_banking.html investorwords.com
3. ^ Euromoney
4. ^ Barclays Global Investors
5. ^ Prudential: Securities Processing Primer
6. ^ "Watchdog warns of criminal gangs inside banks", The Guardian. Retrieved on 30 November 2007.
7. ^ The Opportunity: Small Global Market Share, Page 11, from the Sanford C. Bernstein & Co. Strategic Decisions Conference - 6/02/04
8. ^ BusinessWeek/Interbrand 2006 Global Brand Survey
9. ^ Guide: Financial terminology from Annuities to Zero-coupon bonds
10. ^ CardReport: Charge-off
11. ^ The Street