An analysis of the main functions of commercial banks and the acceptance of deposits

History of banking Among many other things, the Code of Hammurabi from BC recorded interest-bearing loans. Banking began with the first prototype banks of merchants of the ancient world, which made grain loans to farmers and traders who carried goods between cities and this system is known as a barter system. This began around BC in Assyria and Babylonia.

An analysis of the main functions of commercial banks and the acceptance of deposits

The GLBA lowers although does not altogether eliminate barriers between the banking and securities industries erected by the Banking Act of popularly known as the "Glass-Steagall Act" 4 and between the banking and the insurance industries erected by the amendments to the Bank Holding Company Act of the "Bank Holding Company Act".

Over the past 60 years, however, evolution of the financial markets driven by competition and technology eroded the separation that previously existed between banks, insurance companies, and securities firms. Regulators responded to these changes with interpretations that increasingly sought to accommodate the market changes.

Beginning in the s, these developments, coupled with arguments for competitive equality both domestically and internationally, spurred Congressional action. Congress considered major restructuring of legal restrictions preventing financial services firms from offering a full array of products, while at the same time maintaining the successful system of functional regulation of securities, insurance, and banking that existed under that framework.

Before the amendment, Sections 3 a 4 and 3 a 5 of the Exchange Act provided that the terms "broker" and "dealer" did not include a "bank.

An analysis of the main functions of commercial banks and the acceptance of deposits

In particular, the amended definitions create 11 "broker" and 4 "dealer" exceptions for banks. Three of these exceptions are similar for both "broker" and "dealer.

Trust and fiduciary activities: Other Exceptions From "Broker" Definition: Third party brokerage arrangements: Certain stock purchase plans: Safekeeping and custody activities: Other Exception From "Dealer" Definition: In recent weeks, we have received an increasing number of inquiries regarding how we will interpret some of the terms in the new specific functional exceptions.

In response to interpretive questions that have arisen, we are adopting, as interim final rules, 15 new Exchange Act Rules 3b and 3b Rule 3b also provides legal certainty to banks regarding the availability of the fiduciary activities exception when they act as indenture trustees or as trustees for tax-deferred accounts.

New Rule 3b defines terms for the exception from the definition of dealer for banks that sell asset-backed securities. To alleviate concerns that have been expressed to us in recent months, we also grant five exemptions under which banks may effect transactions in securities without being registered as broker-dealers.

New Rule 3a responds to concerns banks have expressed about calculating the compensation condition in the trust and fiduciary activities exception. New Rule 3a allows banks to effect transactions as indenture trustees in no-load money market funds without meeting the "chiefly compensated" condition in the trust and fiduciary activities exception.

New Rule 3a provides a conditional exemption to allow small banks to effect transactions in investment company securities held in tax-deferred custody accounts and to be compensated for this brokerage activity. Small banks may not rely this exemption if they are affiliated with, or have networking arrangements with, registered broker-dealers.

New Rule 3a conditionally exempts all banks that effect transactions in securities for custody accounts without, directly or indirectly, receiving compensation for providing this service.

This exemption is available only to banks that otherwise meet the conditions of another exception or exemption. New Rule 3a conditionally exempts from the definition of "dealer" banks engaged in riskless principal transactions if they do not exceed the de minimis transactions exception limit in Exchange Act Section 3 a 4 B xi.

We understand that banks will need time to determine whether any securities activities must be conducted through registered broker-dealers after May 11, In addition, some banks may not have completed the process of ensuring that securities transactions are conducted through registered broker-dealers, where required.

What is a 'Commercial Bank'

Accordingly, new Rule 15a-7 exempts banks that are engaging in securities activities from the definitions of broker and dealer until October 1, Finally, new Rule 15a-9 exempts savings associations and savings banks 18 from the definitions of "broker" and "dealer" under Exchange Act Sections 3 a 4 and 3 a 5 on the same terms and conditions that apply to banks.

We recognize that banks have developed their particular securities activities under the general exception from broker-dealer registration that existed prior to the passage of the GLBA. Because particular banks may have individual considerations that may be appropriate for additional relief, we are authorizing the Director of the Division of Market Regulation to consider, on a case-by-case basis, individual requests for exemptive relief from banks.

We also are directing the staff to consider requests from savings associations and savings banks for additional exemptive relief. We expect the staff to submit novel and complex requests for exemption to us.

As a general matter, under the federal securities laws, parties relying on an exception or exemption have the burden of demonstrating that they qualify for such exception or exemption. We would therefore expect banks, as a matter of good business practice, to be able to demonstrate that they meet the terms of a particular exemption.

We solicit comment regarding whether the requirements that the bank regulators are required to adopt under Section 18 t of the FDIA 20 will be sufficient for this purpose or whether the Commission itself should adopt record keeping rules relating to these exemptions.

We solicit comment on what records banks have or can develop to demonstrate to the Commission that they meet the terms of a particular exemption. We also solicit comment on whether it is necessary for savings association and savings bank regulators to adopt record keeping requirements for savings associations and savings banks analogous to those adopted for banks.

We request comment on all aspects of the interim final rules as well as comment on the specific provisions and issues highlighted below.

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As a result, banks are able to affiliate with securities firms and insurance companies within the same financial holding company. The GLBA codified the concept of functional regulation -- that is, regulation of the same functions, or activities, by the same expert regulator, regardless of the type of entity engaging in those activities.

Congress believed that, given the expansion of the activities and affiliations in the financial marketplace, functional regulation was important to building a coherent financial regulatory scheme.

In the legislative history, Congress specifically expressed concern that the complete exception had permitted banks to engage in securities activities without being subject to the provisions of the federal securities laws that were designed to protect investors.

What are the Functions of Commercial Banks?

They are specifically and uniquely designed to assure the protection of investors through full disclosure concerning securities and the prevention of unfair and inequitable practices in the securities markets.the plutocracy cartel an entrenched global elite of vast wealth has spread its tentacles over the earth wielding extraordinary power over world affairs.

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The main functions of commercial banks are: Acceptance of deposits; commercial banks accept deposits from their clients both individuals and firms.

To accomplish this, they offer different types of accounts to suit the depositors such as current account, savings account and fixed deposit account. Commercial banks receive deposits from the public and use these deposits to give loans.

However, loans offered are many times more than the deposits received by banks. This function of banks is known as ‘Money Creation’.

An analysis of the main functions of commercial banks and the acceptance of deposits

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