Concepts of Banking Flashcards

A complete set of vocabulary flashcards covering the definitions, categories, and regulatory principles of banking as detailed in the lecture notes.

Bank

A financial institution that collects society's surplus cash and provides loans to investors to earn profit, acting as an intermediary between owners of surplus savings and investors of deficit capital.

Surplus units

Entities in society that consume less than their incomes, saving small amounts that become significant when aggregated in a bank.

Deficit units

Entities that may possess large sums of money but require even larger amounts for their ventures and borrow from financial intermediaries.

Interest-spread

The difference between the higher interest rates charged to borrowers and the lower interest rates paid to depositors, which serves as a source of profit for the bank.

Credit creation

The specific banking function that distinguishes a bank from a non-banking financial intermediary.

Fixed deposits

Deposits that are withdrawable only after a specified period, typically offering higher interest rates for longer durations.

Current deposits

Deposits withdrawable at any time by cheque, upon which banks generally do not pay any interest.

Savings bank deposits

Deposits subject to restrictions on the amount receivable or withdrawable, typically carrying a lower rate of interest than fixed deposits.

Liquidity principle

The requirement for a bank to maintain sufficient cash in its tills and with the central bank to meet the daily withdrawal demands of depositors.

Statutory Liquidity Ratio (SLR)

A legal requirement for banks in Bangladesh to maintain a specific percentage of their deposits as liquidity, currently set at $18.5\%$.

Cash Reserve Ratio (CRR)

The portion of the total deposit liabilities ($5.5\%$) that must be kept as cash with Bangladesh Bank.

Unit bank

A banking system confined to a single office in a particular area, characterized by small size, limited capital, and efficient management.

Branch bank

A system originating in the United Kingdom where a bank operates through a network of branches throughout a country or abroad, controlled by a head office.

Chain bank

A system where two or more banks agree to operate under the direction of a single manager to increase profit and goodwill while remaining separate legal entities.

Group bank

A banking system where two or more banks are controlled by an incorporated holding company that holds the majority of voting power.

Mixed bank

An institution that combines commercial banking (short-term financing) with investment banking (long-term financing).

Central bank

The top controlling institution that manages credit, acts as a bankers' bank, and holds a monopoly on issuing currency notes; in Bangladesh, this is Bangladesh Bank.

Specialized bank

Banks that focus on financing specific economic and social sectors, such as industrial, agricultural, or cottage industries.

Grameen Bank

A banking system founded by Professor Muhammad Yunus that provides credit to the rural poor without requiring collateral, based on mutual trust and accountability.

Merchant bank

An institution involved in issue management of securities, underwriting, portfolio management, and corporate counseling.

Investment bank

An institution that assists commercial organizations in raising long-term capital through the sale of shares, stocks, debentures, and bonds.

Scheduled bank

A bank included in the list maintained by the central bank under Article 32 of the Bangladesh Bank Order-1972, required to have a paid-up capital of at least $400\text{ crore}$.

Non-scheduled bank

Banks not included in the central bank's schedule, which do not receive privileges like clearing facilities or re-discounting of bills.

Offshore Banking

Banking operations set up in demarcated zones that raise funds from non-resident sources for investment and are often exempt from domestic taxes and reserve requirements.

Garnishee Order

A court order instructing a bank to withhold funds belonging to a debtor (judgment debtor) until further direction from the court.

Know Your Customer (KYC)

A procedural requirement for banks to identify customers and monitor transactions to prevent forgery, deception, and money laundering.

Basel II

The second of the Basel Accords, which recommendation banking laws based on three pillars: Minimum Capital Requirements, Supervisory Review, and Market Discipline.

Debtor-creditor relationship

The primary relationship between a banker and a customer where the bank is the debtor and the depositor is the creditor.

Bailor-bailee relationship

The relationship established when a bank receives gold ornaments or important documents for safe custody in lockers.

Bankrupt

A state of financial inability declared by a court for an individual whose liabilities exceed their assets and who is unable to pay their debts.

Bond

A debt security representing a loan for which the holder receives interest at a fixed rate for a fixed period of time.

Mutual fund

A company that pools money from many investors to invest in a portfolio of stocks, bonds, and other securities, passing income to shareowners after fees.

Goldsmiths

Historical ancestors of modern bankers who introduced the practices of safekeeping money and issuing 'deposit slips' and 'withdraw slips'.