Banking

Question 1

What are the roles of banks?

Answer 1

• providing liquidity for the financial system
• financial intermediary
• bringing together providers and users of capital
• distributing valuable economic and business information among customers and capital markets

Question 2

List and describe the five types of banks

Answer 2

1. Traditional deposit-taking banks
   . Commercial/retail banks
   . Accepting deposits, providing loans, mortgage lending, investment products
   . Public companies that are regulated, listed on stock exchanges and owned by shareholders
2. Development banks
   . Development Financial Institutions (DFI)
   . Microfinance and community development institutions
   . Providing credit through higher risk loans to public and private sectors
   . Usually supported by government of a country
   . Development Bank of South Africa (focusses on large infrastructure projects within the public and private sectors)
3. Reserve (or central) banks
   . Achieve and maintain price stability in the interests of balanced and sustainable economic growth
   . South African Reserve Bank (formulation and implementation of inflation targeting and monetary policy)
   . Issues bank notes
   . SARB with Prudential Authority responsible for regulation and supervision
4. Investment banks
   . Debt raising and equity financing for corporations and governments
   . Originating securities, underwriting them, and placing with investors
5. Community banks
   . Membership based, decentralised, and self-help financial institutions
   . Credit associations, ‘stokvels’ (formalised village banks) and very formalised institutions registered under Mutual Banks Act