2. The name bank derives from the Italian word banco
which means "desk/bench“
The word traces its origins back to the Ancient Roman
Empire, where moneylenders would set up their stalls in
the middle of enclosed courtyards called macella on a
long bench called a bancu, from which the words banco
and bank are derived.
The Lombard Jews in Italy had benches in the
marketplace, here they exchanged money and bills.
When a banker failed, his bench was broken by the
people and he was called bankrupt.
French word “Banque” which also means a Bench
which resulted in word BANK.
3. A bank is a financial intermediary that
accepts deposits and channels those deposits
into lending activities, either directly or through capital
markets. A bank connects customers with capital deficits
to customers with capital surpluses.
A bank is an institution that accepts various types of
deposits and then advances money in form of loans to
people requiring it.
According to the banking Companies Act, 1949- Banking
means the accepting , for the purpose of lending or
investment, of deposits of money from public repayable
on demand or otherwise, and withdrawable by cheque,
draft, pay order or otherwise.
4. Lending and borrowing of money.
Issue of banknotes (promissory notes issued by a
banker and payable to bearer on demand)
Currency exchange
Portfolio management
Safekeeping of documents and other items in safe
deposit boxes
Distribution or brokerage
Issuing bank drafts and bank cheques.
Processing of payments by way of telegraphic
transfer, EFTPOS, internet banking or other means
5. Investment Banking
Retail Banking
Business Banking or Commercial Banking
Private Banking
Islamic Banking
6. An investment banking is a financial
institution that raises capital, trades
securities and manages corporate mergers
and acquisitions.
Another term for investment banking is
corporate finance.
Unlike commercial banks and retail banks,
investment banks do not take deposits.
7. Underwriting (Public offering of securities)
Trading of Securities
Mergers and Acquisitions
Money Management:
(Investment banking firms have created
subsidiaries that manage funds for either
individual investors or institutional investors such
as pension funds.)
8. Bank of America (Bank of America Merrill Lynch)
Barclays (Barclays Capital)
BNP Paribas (BNP Paribas CIB)
Citigroup (Citi Institutional Clients Group)
Credit Suisse
Deutsche Bank
Goldman Sachs
JPMorgan Chase (J.P. Morgan Investment Bank)
Morgan Stanley
Nomura Holdings Inc
UBS (UBS Investment Bank)
RBS (RBS Global Banking and Markets)
Wells Fargo Securities
9. Retail banking refers to banking in
which banking institutions execute
transactions directly with consumers, rather
than corporations or other banks.
10. Savings and Transactional accounts ( Current
Account),
Mortgages,
Personal loans,
Debit cards,
Credit cards,
Telephone banking
Mobile banking
Electronic funds transfer
11. Private banking is a term
for banking, investment and other financial
services provided by banks to private individuals
investing sizeable assets. The term "private" refers to
the customer service being rendered on a more
personal basis than in mass-market retail banking,
usually via dedicated bank advisers.
Historically private banking has been viewed as very
exclusive, only catering for high net worth
individuals with liquidity over $2 million.
An institution's private banking division will provide
various services such as wealth management,
savings, inheritance and tax planning for their clients.
12. For private banking services clients pay either
based on the number of transactions, the annual
portfolio performance or a "flat-fee", usually
calculated as a yearly percentage of the total
investment amount.
The word "private" also alludes to bank
secrecy and minimizing taxes through careful
allocation of assets or by hiding assets from the
taxing authorities. Swiss and certain offshore
banks have been criticized for such cooperation
with individuals practicing tax evasion.
13. Rank in 2010 Company Rank in 2009
1
JPMorgan
3
2. Goldman Sachs 2
3. UBS 1
4. Credit Suisse 6
5. HSBC 4
6. Citigroup 5
7. Pictet 8
8= Deutsche Bank 7
8= Rothschild 11
10. BNP Paribas 10
14. Islamic banking refers to a system of banking or banking
activity that is consistent with the principles of Islamic
law (Sharia) and its practical application through the
development of Islamic economics. Sharia prohibits the
payment or acceptance of interest fees for loans of money
(Riba i.e. surplus )for specific terms, as well as investing in
businesses that provide goods or services considered
contrary to its principles. While these principles were used
as the basis for a flourishing economy in earlier times, it is
only in the late 20th century that a number of Islamic
banks were formed to apply these principles to private or
semi-private commercial institutions within the Muslim
community
15. Types of Bank
Central Bank
(RBI)
Commercial
Banks
1.Public Sector
2.Private Sector
3.Foreign Banks
Development
Banks
Co-operative
Banks
1.Primary credit societies
2.Central Co-op Banks
3.State Co-op Banks
Specialized
Banks
EXIM Bank,
SIDBI, NABARD
16. A bank which is entrusted with the functions of
guiding and regulating the banking system of a
country.
The Central Bank provides guidance to other banks
whenever they face any problem. It is therefore
known as the banker’s bank.
The Central Bank maintains record of Government
revenue and expenditure under various heads.
It also advises the Government on monetary and
credit policies and decides on the interest rates for
bank deposits and bank loans.
In addition, foreign exchange rates are also
determined by the central bank.
Another important function of the Central Bank is
the issuance of currency notes, regulating their
circulation in the country by different methods.
17. A commercial bank is a type of financial intermediary and
a type of bank. Commercial banking is also known
as business banking.
It is a bank that provides checking accounts, savings
accounts, and money market accounts and that accepts
time deposits.
Commercial Banks are banking institutions that accept
deposits and grant short-term loans and advances to their
customers. In addition to giving short-term loans,
commercial banks also give medium-term and long-term
loan to business enterprises. Now-a-days some of the
commercial banks are also providing housing loan on a
long-term basis to individual.
18. After the implementation of the Glass-Steagall Act, the
U.S. Congress required that banks engage only in banking
activities, whereas investment banks were limited
to capital market activities. As the two no longer have to
be under separate ownership under U.S. law, some use the
term "commercial bank" to refer to a bank or a division of
a bank primarily dealing with deposits and loans from
corporations or large businesses. In some other
jurisdictions, the strict separation of investment and
commercial banking never applied. Commercial banking
may also be seen as distinct from retail banking, which
involves the provision of financial services direct to
consumers. Many banks offer both commercial and retail
banking services.
19. Commercial banks are of three types i.e.,
Public sector banks, Private sector banks and Foreign
banks.
(i) Public Sector Banks: These are banks where majority
stake is held by the Government of India or Reserve
Bank of India. Examples of public sector banks are:
State Bank of India, Corporation Bank, Bank of Baroda
and Dena Bank, etc.
20. (ii) Private Sectors Banks: In case of private sector banks
majority of share capital of the bank is held by private
individuals. These banks are registered as companies with
limited liability. For example: The Jammu and Kashmir Bank
Ltd., Bank of Rajasthan Ltd. Development Credit Bank Ltd,
Lord Krishna Bank Ltd., Bharat Overseas Bank Ltd., Global
Trust Bank, Vysya Bank, Axis, ICICI, HDFC, Yes Bank etc.
(iii) Foreign Banks: These banks are registered and have their
headquarters in a foreign country but operate their branches
in our country. Some of the foreign banks operating in our
country are Hong Kong and Shanghai Banking Corporation
(HSBC), Citibank, American Express Bank, Standard &
Chartered Bank, Grindlay’s Bank, RBS etc. The number of
foreign banks operating in our country has increased since
the financial sector reforms of 1991.
21. Business often requires medium and long-term
capital for purchase of machinery and
equipment, for using latest technology, or for
expansion and modernization.
Such financial assistance is provided by
Development Banks. They also undertake other
development measures like subscribing to the
shares and debentures issued by companies, in
case of under subscription of the issue by the
public.
Industrial Finance Corporation of India (IFCI),
IDBI (Industrial Development Bank of India ) and
State Financial Corporations (SFCs) are
examples of development banks in India.
22. People who come together to jointly serve their
common interest often form a co-operative
society under the Co-operative Societies Act.
When a co-operative society engages itself in
banking business it is called a Co-operative
Bank.
The society has to obtain a license from the
Reserve Bank of India before starting banking
business. Any co-operative bank as a society is
to function under the overall supervision of the
Registrar, Co-operative Societies of the State.
As regards banking business, the society must
follow the guidelines set and issued by the
Reserve Bank of India.
23. Primary Credit Societies: These are formed at the village or town
level with borrower and non-borrower members residing in one
locality. The operations of each society are restricted to a small
area so that the members know each other and are able to watch
over the activities of all members to prevent frauds.
Central Co-operative Banks: These banks operate at the district
level having some of the primary credit societies belonging to the
same district as their members. These banks provide loans to their
members (i.e., primary credit societies) and function as a link
between the primary credit societies and state co-operative
banks.
State Co-operative Banks: These are the apex (highest level) co-operative
banks in all the states of the country. They mobilise
funds and help in its proper channelisation among various sectors.
The money reaches the individual borrowers from the state co-operative
banks through the central co-operative banks and the
primary credit societies.
24. Export Import Bank of India (EXIM Bank):
If you want to set up a business for exporting products
abroad or importing products from foreign countries
for sale in our country, EXIM bank can provide you the
required support and assistance.
The bank grants loans to exporters and importers and
also provides information about the international
market.
It gives guidance about the opportunities for export or
import, the risks involved in it and the competition to
be faced, etc.
25. Small Industries Development Bank of
India (SIDBI):
If you want to establish a small-scale business
unit or industry, loan on easy terms can be
available through SIDBI.
It also finances modernisation of small-scale
industrial units, use of new technology and
market activities.
The aim and focus of SIDBI is to promote,
finance and develop small-scale industries.
26. National Bank for Agricultural and Rural
Development (NABARD):
It is a central or apex institution for financing
agricultural and rural sectors.
If a person is engaged in agriculture or other
activities like handloom weaving, fishing, etc.
NABARD can provide credit, both short-term
and long-term, through regional rural banks.
It provides financial assistance, especially, to co-operative
credit, in the field of agriculture, small-scale
industries,cottage and village industries
handicrafts and allied economic activities in rural
areas.
27. Banks offer many different channels to access their banking and other
services:
ATM is a machine that dispenses cash and sometimes takes deposits
without the need for a human bank teller. Some ATMs provide additional
services.
A branch is a retail location
Call center
Mail: most banks accept check deposits via mail and use mail to
communicate to their customers, e.g. by sending out statements
Mobile banking is a method of using one's mobile phone to conduct
banking transactions
Online banking is a term used for performing transactions, payments
etc. over the Internet
Relationship Managers, mostly for private banking or business banking,
often visiting customers at their homes or businesses
Telephone banking is a service which allows its customers to perform
transactions over the telephone without speaking to a human
28. A bank can generate revenue in a variety of
different ways:
Interest,
Transaction fees,
Financial advice.
The main method is via charging interest on the
capital it lends out to customers.
Banks make money from card products through
interest payments and fees charged to
consumers and transaction fees to companies
that accept the cards.
29. Banks face a number of risks in order to conduct their business,
and how well these risks are managed and understood is a key
driver behind profitability, and how much capital a bank is
required to hold. Some of the main risks faced by banks include:
Credit risk: risk of loss arising from a borrower who does not make
payments as promised.
Liquidity risk: risk that a given security or asset cannot be traded
quickly enough in the market to prevent a loss (or make the
required profit).
Market risk: risk that the value of a portfolio, either an investment
portfolio or a trading portfolio, will decrease due to the change in
value of the market risk factors.
Operational risk: risk arising from execution of a company's
business functions.
30. The capital requirement is a bank regulation,
which sets a framework on how banks and
depository institutions must handle their
capital. The categorization of assets and
capital is highly standardized so that it can be
risk weighted
(risk-weighted asset).
31. Credit risk is an investor's risk of loss arising
from a borrower who does not make payments
as promised. Such an event is called a default.
Another term for credit risk is default risk.
Investor losses include
lost principal and interest, decreased cash flow,
and increased collection costs, which arise in a
number of circumstances:
1. A consumer does not make a payment due on
a mortgage loan, credit card or other loan.
2. A business does not pay an employee's
earned wages when due.
32. Bank regulations are a form of government regulation which
subject banks to certain requirements, restrictions and guidelines.
The objectives of bank regulation, and the emphasis, vary
between jurisdictions. The most common objectives are:
Prudential—to reduce the level of risk bank creditors are exposed
to (i.e. to protect depositors)
Systemic risk reduction—to reduce the risk of disruption resulting
from adverse trading conditions for banks causing multiple or
major bank failures
Avoid misuse of banks—to reduce the risk of banks being used for
criminal purposes, e.g. laundering the proceeds of crime.
To protect banking confidentiality.
33. Minimum requirements (The most important minimum requirement in
banking regulation is maintaining minimum capital ratios).
Supervisory review (Banks are required to be issued with a bank license
by the regulator in order to carry on business as a bank, and the regulator
supervises licensed banks for compliance with the requirements and
responds to breaches of the requirements through obtaining undertakings,
giving directions, imposing penalties or revoking the bank's license.)
Market discipline (The regulator requires banks to publicly disclose
financial and other information, and depositors and other creditors are able
to use this information to assess the level of risk and to make investment
decisions. As a result of this, the bank is subject to market discipline and
the regulator can also use market pricing information as an indicator of the
bank's financial health.)
34. Capital requirement (The capital requirement sets a framework on how
banks must handle their capital in relation to their assets. Internationally,
the Bank for International Settlements' Basel Committee on Banking
Supervision influences each country's capital requirements. In 1988, the
Committee decided to introduce a capital measurement system commonly
referred to as the Basel Capital Accords. The latest capital adequacy
framework is commonly known as Basel II.)
Reserve requirement.
Corporate governance.
Financial reporting and disclosure requirements
Credit rating requirement
Large exposures restrictions
35. The Basel Accords refer to the banking supervision
Accords (recommendations on banking laws and
regulations) -- Basel I and Basel II issued and Basel
III under development -- by the Basel Committee on
Banking Supervision (BCBS). They are called the Basel
Accords as the BCBS maintains its secretariat at
the Bank of International
Settlements in Basel, Switzerland and the committee
normally meets there.
The Basel Committee is named after the city of Basel,
Switzerland
36. Basel I is the round of deliberations by central bankers from around the
world, and in 1988, the Basel Committee (BCBS) in Basel, Switzerland,
published a set of minimal capital requirements for banks. This is also
known as the 1988 Basel Accord, and was enforced by law in the Group of
Ten (G-10) countries in 1992. Basel I is now widely viewed as outmoded.
Basel I, that is, the 1988 Basel Accord, primarily focused on credit risk.
Assets of banks were classified and grouped in five categories according to
credit risk, carrying risk weights of zero, ten, twenty, fifty, and up to one
hundred percent (this category has, as an example, most corporate debt).
Banks with international presence are required to hold capital equal to 8 %
of the risk-weighted assets. However, large banks like JPMorgan
Chase found Basel I's 8% requirement to be unreasonable, and
implemented credit default swaps so that in reality they would have to hold
capital equivalent to only 1.6% of assets.
37. Basel II is the second of the Basel Accords, which are
recommendations on banking laws and regulations issued by
the Basel Committee on Banking Supervision.
The purpose of Basel II, which was initially published in June 2004,
is to create an international standard that banking regulators can
use when creating regulations about how much capital banks need
to put aside to guard against the types of financial and operational
risks banks face.
Advocates of Basel II believe that such an international standard
can help protect the international financial system from the types of
problems that might arise should a major bank or a series of banks
collapse.
38. Basel II attempted to accomplish this by setting up risk
and capital management requirements designed to
ensure that a bank holds capital reserves appropriate to
the risk the bank exposes itself to through its lending
and investment practices.
“The greater risk to which the bank is exposed, the
greater the amount of capital the bank needs to hold to
safeguard its solvency and overall economic stability.”
39. The final version aims at:
Ensuring that capital allocation is more risk
sensitive;
Separating operational risk from credit risk,
and quantifying both;
Attempting to align economic and regulatory
capital more closely to reduce the scope
for regulatory arbitrage.
40. The first pillar:
The first pillar deals with maintenance of regulatory capital calculated for
three major components of risk that a bank faces: credit risk, operational
risk, and market risk. Other risks are not considered fully quantifiable at
this stage.
The credit risk component can be calculated in three different ways of
varying degree of sophistication, namely standardized
approach, Foundation IRB and Advanced IRB. IRB stands for "Internal
Rating-Based Approach".
For operational risk, there are three different approaches - basic
indicator approach or BIA, standardized approach or TSA, and the
internal measurement approach (an advanced form of which is
the advanced measurement approach or AMA).
For market risk the preferred approach is VaR (value at risk).
41. The second pillar deals with the regulatory
response to the first pillar,
giving regulators much improved 'tools' over
those available to them under Basel I. It also
provides a framework for dealing with all the
other risks a bank may face, such as systemic
risk, pension risk, concentration risk, strategic
risk, reputational risk, liquidity risk and legal risk,
which the accord combines under the title of
residual risk. It gives banks a power to review
their risk management system.
42. This pillar aims to promote greater stability in the financial
system
Market discipline supplements regulation as sharing of
information facilitates assessment of the bank by others
including investors, analysts, customers, other banks and rating
agencies. It leads to good corporate governance. The aim of
pillar 3 is to allow market discipline to operate by requiring
lenders to publicly provide details of their risk management
activities, risk rating processes and risk distributions. It sets out
the public disclosures that banks must make that lend greater
insight into the adequacy of their capitalisation. when
marketplace participants have a sufficient understanding of a
bank’s activities and the controls it has in place to manage its
exposures, they are better able to distinguish between banking
organisations so that they can reward those that manage their
risks prudently and penalise those that do not.
43. BCBS: The Basel Committee on Banking Supervision is an institution
created by the central bank Governors of the Group of Ten nations. It was
created in 1974 and meets regularly four times a year.
Bank of International Settlements: The Bank for International
Settlements (BIS) is an intergovernmental organization of central
banks which "fosters international monetary and financial cooperation and
serves as a bank for central banks." It is not accountable to any national
government. The BIS carries out its work through subcommittees, the
secretariats it hosts, and through its annual General Meeting of all
members. It also provides banking services, but only to central banks, or to
international organizations like itself. Based in Basel, Switzerland, the BIS
was established by the Hague agreements of 1930.
Regulatory arbitrage: A practice whereby firms capitalize on loopholes in
regulatory systems in order to circumvent unfavorable regulation
44. Banking in India originated in the last decades of the 18th century. The first banks
were The General Bank of India which started in 1786, and the Bank of Hindustan,
both of which are now defunct.
The oldest bank in existence in India is the State Bank of India, which originated in
the Bank of Calcutta in June 1806, which almost immediately became the Bank of
Bengal.
This was one of the three presidency banks, the other two being the Bank of
Bombay and the Bank of Madras. Three of which were established under charters from
the British East India Company
The three banks merged in 1921 to form the Imperial Bank of India, which, upon
India's independence, became the State Bank of India.The Imperial Bank of India (IBI)
was the oldest and the largest commercial bank of the Indian subcontinent, and was
subsequently transformed into State Bank of India in 1955
45. The Reserve Bank of India, India's central banking
authority, was nationalized on January 1, 1949
under the terms of the Reserve Bank of India
(Transfer to Public Ownership) Act, 1948 (RBI).
In 1949, the Banking Regulation Act was enacted
which empowered the Reserve Bank of India (RBI)
"to regulate, control, and inspect the banks in India.“
The Banking Regulation Act also provided that no
new bank or branch of an existing bank could be
opened without a license from the RBI, and no two
banks could have common directors.
46. In the early 1990s, the then Narsimha Rao government embarked
on a policy of liberalization, licensing a small number of private
banks. These came to be known as New Generation tech-savvy
banks, and included Global Trust Bank (the first of such new
generation banks to be set up), which later amalgamated with
Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI
Bank and HDFC Bank.
This move, along with the rapid growth in the economy of India,
revitalized the banking sector in India, which has seen rapid growth
with strong contribution from all the three sectors of banks, namely,
government banks, private banks and foreign banks.
47. SLR
CRR
Repo Rate
Reverse Repo Rate
Bank Secrecy
Secured Loan
Unsecured Loan
Solvency and Insolvency
Solvency II
48. Statutory Liquidity Ratio is the amount of liquid assets, such as cash, precious
metals or other short-term securities, that a financial institution must maintain in
its reserves. The statutory liquidity ratio is a term most commonly used in India.
The objectives of SLR are: To restrict the expansion of bank credit and To
ensure solvency of banks.
The SLR is commonly used to contain inflation and fuel growth, by increasing or
decreasing it respectively.
SLR restricts the bank’s leverage in pumping more money into the economy.
SLR Rate = Total Demand/Time Liabilities x 100%
Currently, in India, banks have to maintain a SLR of 25% which means that
25% of the value of demand and time liabilities has to be invested in approved
securities
49. CRR is the amount of funds that the banks have to keep
with RBI. It is calculated on the total deposits that the
bank has as on the date. If RBI decides to increase the
percent of this, the available amount with the
banks comes down. RBI is using this method (increase
of CRR rate), to drain out the excessive money from the
banks.
Higher the CRR, the lower the money available for
lending, resulting into reduction in credit expansion by
controlling the money that goes out of loans
Present CRR = 5.25 %.
50. Repo rate is the rate at which our banks
borrow rupees from RBI. A reduction in the
repo rate will help banks to get money at a
cheaper rate. When the repo rate increases
borrowing from RBI becomes more
expensive.
Current Repo Rate is 5%.
51. Reverse Repo rate is the rate at which Reserve Bank of
India (RBI) borrows money from banks. Banks are
always happy to lend money to RBI since their money
are in safe hands with a good interest. An increase in
Reverse repo rate can cause the banks to transfer more
funds to RBI due to this attractive interest rates.
Current Reverse Repo Rate is 3.5%.
52. Liquidity vs. Inflation trade-off
Liquidity Inflation
Policy Rate
hike (Repo and
Reverse Repo)
Drains liquidity
further as rates
go up
Helps manage
demand side inflation
Lower CRR Helps ease
liquidity
Not much impact on
inflation right away.
But lower CRR goes
against the stance to
lower inflation. More
liquidity and money
supply means more
inflationary pressures
Lower SLR Eases liquidity But with banks having
more money it could
lead to higher credit
and inflation
53. Bank secrecy (or bank privacy) is a legal principle in
some jurisdictions under which banks are not allowed
to provide to authorities personal and account
information about their customers unless certain
conditions apply (for example, a criminal complaint
has been filed). In some cases, additional privacy is
provided to beneficial owners through the use
of numbered bank accounts or otherwise. Bank
secrecy is prevalent in certain countries, such
as Switzerland, Singapore, Lebanon and Luxembourg,
as well as offshore banks and other tax havens under
voluntary or statutory privacy provisions.
54. A secured loan is a loan in which the borrower
pledges some asset (e.g. a car or property)
as collateral for the loan, which then becomes
a secured debt owed to the creditor who gives
the loan. The debt is thus secured against the
collateral — in the event that the
borrower defaults, the creditor takes possession
of the asset used as collateral and may sell it to
regain some or all of the amount originally lent
to the borrower.
55. In finance, unsecured debt refers to any type of debt or general
obligation that is not collateralised by a lien on specific assets of the
borrower in the case of a bankruptcyor liquidation.
Also called signature loans or personal loans. These loans are often
used by borrowers for small purchases such as computers, home
improvements, vacations or unexpected expenses.
An unsecured loan means the lender relies on your promise to pay
it back. They're taking a bigger risk than with a secured loan, so
interest rates for unsecured loans tend to be higher. You normally
have set payments over an agreed period and penalties may apply
if you want to repay the loan early. Unsecured loans are often more
expensive and less flexible than secured loans, but suitable if you
want a short-term loan (one to five years).
Credit Cards.
56. Solvency, in finance or business, is the degree to
which the current assets of an individual or
entity exceed the current liabilities of that
individual or entity. Solvency can also be
described as the ability of a corporation to meet
its long-term fixed expenses and to accomplish
long-term expansion and growth.
Insolvency means the inability to pay
one's debts as they fall due. Usually used to refer
to a business, insolvency refers to the inability of
a company to pay off its debts.
57. Solvency II is the updated set of regulatory requirements for insurance
firms that operate in the European Union. It is scheduled to come into
effect on 1 January 2013.
Solvency II will be based on economic principles for the measurement of
assets and liabilities. It will also be a risk-based system as risk will be
measured on consistent principles and capital requirements will depend
directly on this. While the Solvency I Directive was aimed at revising and
updating the current EU Solvency regime, Solvency II has a much wider
scope.
A solvency capital requirement may have the following purposes:
1. To reduce the risk that an insurer would be unable to meet claims;
2. To reduce the losses suffered by policyholders in the event that a firm is
unable to meet all claims fully;
3. To provide early warning to supervisors so that they can intervene
promptly if capital falls below the required level; and
4. To promote confidence in the financial stability of the insurance sector
58. Often called "Basel for insurers," Solvency II is
somewhat similar to the banking regulations
of Basel II. For example, the proposed Solvency II
framework has three main areas (pillars):
Pillar 1 consists of the quantitative requirements
(for example, the amount of capital an insurer
should hold).
Pillar 2 sets out requirements for the
governance and risk management of insurers, as
well as for the effective supervision of insurers.
Pillar 3 focuses on disclosure and transparency
requirements.
59. The pillar 1 framework set out qualitative and quantitative
requirements for calculation of technical provisions and
Solvency Capital Requirement(SCR) using either a
standard formula given by the regulators or an internal
model developed by the (re)insurance company. Technical
provisions represent the current amount an (re)insurance
company would have to pay for an immediate transfer of
its obligations to a third party. The SCR is the capital
required to ensure that the (re)insurance company will be
able to meet its obligations over the next 12 months with a
probability of at least 99.5%. In addition to the SCR capital
a Minimum Capital Requirement (MCR) must be calculated
which represents the minimum level of capital the breach
of which results in supervisory action.
60. Capital Surplus is a term used by economists to denote capital inflows in excess of capital outflows on a
country's balance of payments.
Banknote: A banknote (often known as a bill, paper money or simply a note) is a kind of negotiable instrument,
a promissory note made by a bank payable to the bearer on demand, used as money, and in many jurisdictions
is legal tender.
Wealth Management: Wealth management is an investment advisory discipline that incorporates financial
planning, investment portfolio management and a number of aggregated financial services. High Net Worth Individuals
(HNWIs), small business owners and families who desire the assistance of a credentialed financial advisory specialist call
upon wealth managers to coordinate retail banking, estate planning, legal resources, tax professionals and investment
management. Wealth managers can be an independent CERTIFIED FINANCIAL PLANNER.
Telegraphic Transfer or Telex Transfer , often abbreviated to TT, is an electronic means of transferring funds overseas. A
transfer charge is collected while sending money. A banking term commonly called "T/T," meaning a cable message from
one bank to another in order to effect the transfer of money. It is most often used in UK Banking to refer to a CHAPS
transfer; that is a payment made via the Clearing House Automated Payments System.
' Rupee ' comes from the Sanskrit word ' Rupa ' which means ' Beauty '
61. EFTPOS: Electronic Funds Transfer at Point of Sale is the general term used for debit card based
systems used for processing transactions through terminals at points of sale
Underwriting: Underwriting refers to the process that a large financial service provider (bank,
insurer, investment house) uses to assess the eligibility of a customer to receive their products
(equity capital, insurance,mortgage, or credit). The name derives from the Lloyd's of
London insurance market. Financial bankers, who would accept some of the risk on a given
venture (historically a sea voyage with associated risks of shipwreck) in exchange for a premium,
would literally write their names under the risk information that was written on a Lloyd's slip
created for this purpose.
Securities: A security is a fungible, negotiable instrument representing financial value. Securities
are broadly categorized into debt securities (such as banknotes, bonds and debentures)
and equity securities, e.g., common stocks; and derivative contracts, such
as forwards, futures, options and swaps.
Risk-weighted asset is a bank's assets weighted according to credit risk.
Credit Default Swaps: A credit default swap (CDS) is a swap contract and agreement in which the
protection buyer of the CDS makes a series of payments (often referred to as the CDS "fee" or
"spread") to the protection seller and, in exchange, receives a payoff if a credit instrument
(typically a bond or loan) experiences a credit event.
