Banking

1 Central banking

Watch the video and put down the most important functions of the Federal Reserve
System (Fed)

2 The Bank of England and the Fed

The endings of some of the sentences have been omitted from the text. Find the endings
in the box - one of them is redundant - and put them where they belong.

A) when they have no other means of borrowing

B) very much like the special deposits by the Bank of England
C) in order to lend money to King William III to finance his war with France
D) though their assistance cannot be refused
E) by calling on the commercial banks for special deposits
F) though it differed from them in that it was the banker to the government

The central bank of the UK, the Bank of England, was incorporated in 1695 by London
merchants ……………. At that time, the Bank of England was just one of several other
banks, ………………………. The Bank Charter Act of 1844 aimed to restrict the issue of
banknotes (which originally was not the privilege of one bank) and eventually the Bank of
England became the only bank in the country with the right to issue them. It also stores the
country's gold reserves. The Bank of England was nationalised in 1946. Since 1960, it has
controlled credit policy, ………….….. It is also the lender of last resort, which means it can
lend to commercial banks …………………..

The central banking system of the US, called the Federal Reserve System (Fed), was
established in 1913. The United States is divided into 12 Federal Reserve Districts, each with
its own Federal Reserve Bank, whose activities are coordinated and controlled by the Federal
Reserve Board in Washington D.C. Commercial banks which are members of the Federal
Reserve System maintain reserves with the Federal Reserve Banks and their requirements are
determined by the Federal Reserve Board, …………………..
3 The financial sector

Match the financial institution with its definition.

1) Unit trust (UK), mutual funds (US)

2) Insurance companies
3) Neobanks
4) Credit unions (US)
5) Pension funds, superannuation funds
6) Hedge funds
7) Merchant banks (UK), issuing houses, accepting houses
8) Investment banks (US)
9) Commercial banks (retail banks, high-street banks)
10) Building societies (UK), thrifts, savings and loans associations (US)

………………….…………. They are financial intermediaries, which, besides managing

customers’ accounts and making loans, provide a very wide range of services.

………………………….... They make mortgage loans. Originally, they paid more interest on
deposits than banks; today, however, they can offer interest-bearing current (US: checking
accounts), and their interest rates are closer to bank deposit rates.

……………….……………. These are co-operatives owned by the members. Like banks,

they can take deposits, give customers chequebooks, and make loans; they can also sell life
insurance. Only members can borrow, and membership is usually limited to people.

……………………………. They offer insurance products to take on risks in return for a

premium. They can loan out their funds or invest their money in government securities or in
shares in companies.

………….……………… They accumulate funds from the contributions of employees, and

they are used to earn interest and dividends from bonds and shares they have invested in.
They can be managed by banks or insurance companies, or they can be self-administered.

………..………………….. use investors' money to purchase a variety of financial

instruments. Investors' earnings are based on the interest or dividends received by these
investment companies.

…………..………………….. They cater for the corporate client. Their aim is to meet all the
financing needs of small and big companies. They also give them advice in all aspects of
finance and management, manage pension funds and unit trusts, deal in foreign exchange,
gold bullion and securities, and raise money for the government.

…………..……………….. They carry out services similar to those of merchant banks. They
work with large companies, giving financial advice, assisting in raising capital, arranging
mergers and takeover bids. The also offer stockbroking and portfolio management services.

…….…………………………. They are digital banking platforms operating online.

…………..……………………. They are private investment funds that use a variety of risky
investment strategies in order to achieve high returns,

4 The functions of commercial banks

Group the following banking services

 extend loans in national and foreign currencies (personal loans, hire purchase, business
loan, leasing).
 manage current accounts (UK), checking account (US), demand deposit account (US)
 manage savings account (UK), time deposit account (US)
 provide overdraft facilities
 meet standing orders
 issue credit and debit cards
 make transfers
 operate cash dispensers (also known as ATM)
 provide factoring services
 exchange foreign currency
 trade in securities, sell government bonds
 operate mutual funds
 operate pension funds
 provide safe boxes
 offer insurance services
 offer internet banking and telebanking services

Savings services Payment services Lending services Other Services

5 Read the following article and answer the questions

Why banks offer cash for your custom

High Street bank Halifax, in a whirl of advertising, has just increased its introductory cash
incentive for anyone switching to its current account to £125.
It is not the only bank to be dangling a financial carrot in front of potential customers. First
Direct recently raised its cash offer. A handful of banks at the top of the satisfaction league
tables do something similar.
Incentives are nothing new in banking. Before the financial crisis, one lender was even giving
a car free with a mortgage.
Cash - even a three-figure sum - feels positively penny-pinching in comparison to a new
Rover, but it seems to be working.
"Rewarding switchers seems to be the biggest trend in the market right now," says Rachel
Springall, of financial information service Moneyfacts.
Perks are being offered because banks are desperate for data. A current account reveals so
much about a consumer's financial life that it allows banks to pinpoint the other products it
can sell to that customer, and when.
Nowadays, the student market is the hotbed for banking incentives.
Travelcards, Amazon vouchers and pizza discounts are being used as bait for teenagers
opening an account before they head to university or college.
Clearly, banks love to attract students. Individuals are still incredibly loyal to their bank, so
signing up somebody as they take on their first major financial responsibilities could mean
many years of custom.
Student days are often dominated by debt. So, for the students themselves, an account with as
big an interest-free overdraft as possible will often prove more valuable than an annual
railcard, according to Andrew Hagger, of Moneycomms.
In addition to rising one-off cash payments, regular non-student bank customers have been
offered a host of free incentives in the last couple of years.
Savers have been attracted with the offer of an iPad. Credit card customers have been
promised free wine. Some homeowners taking out a mortgage have had a year of council tax
paid for them.

1) What did Halifax offer to its clients?

2) What does the client need to do to get the special offer?

3) What did one of the banks give with a mortgage?

4) What is the biggest trend in the market?

5) Why do banks offer these incentives?

6) How do banks try to attract students?

7) What is valuable to students and why?

8) How do banks attract savers, credit card customers and homeowners?

Explain or translate the following words or phrases.

high street bank

whirl of advertising
cash incentive
dangle the financial carrot
mortgage
switcher
perks
current account
voucher
interest free
overdraft