CAT / FIA FFM Syllabus C. Managing Cash Balances - Types of banks - Notes ^{1 / 13}

These are:

1. Retail Banks (Commercial banks)

   - traditional 'High Street' banks.

2. Wholesale Banks (Investment Banks or merchant banks)

   - specialise in providing financial services to large organisations.

Types of banks

• Retail Banks:
  Retail banks provide basic banking services to individual consumers. 

  Examples include savings banks, savings and loan associations.

  Products and services include safe deposit boxes, checking and savings accounting, certificates of deposit (CDs), mortgages, personal, consumer and car loans.

• Commercial Banks:
  Accept deposits of money from the public for the purpose of lending or investment. 

  Commercial Banks provide financial services to businesses, including credit and debit cards, bank accounts, deposits and loans, and secured and unsecured loans. 

  Commercial banks in modern capitalist societies act as financial intermediaries, raising funds from depositors and lending the same funds to borrowers.

• Investment Banks:
  An investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities. 

  An investment bank may also assist companies involved in mergers and acquisitions, and provide services such as trading of derivatives, fixed income instruments, foreign exchange, commodities, and equity securities.

• Central Banks:
  Central banks are bankers’ banks.

  They guarantee stable monetary and financial policy from country to country and play an important role in the economy of the country. 

  Typical functions include implementing monetary policy, managing foreign exchange and gold reserves, making decisions regarding official interest rates, acting as banker to the government and other banks, and regulating and supervising the banking industry.

These banks buy government debt, have a monopoly on the issuance of paper money, and often act as a lender of last resort to commercial banks.

Covenants

1. Positive (Affirmative Covenant)

   is a type of promise or contract which requires a party to do something. 

   For example, a bond covenant that provides that the issuer will maintain adequate levels of insurance or deliver audited financial statements is an affirmative covenant.

2. Negative (Restrictive) covenants

   require a party NOT to do something, such as sell certain assets.

3. Quantitive covenants

   are promises to keep within financial limits set by the lender.