VII. Answer the following comprehension questions based on the text:

1. What does successful competition in the market of bank services presuppose?

2. What factors determine the bank’s organization and operation?

3. What is characteristic of a small community bank (as opposed to a whole sale bank)?

4. What are the potential advantages of large bank?

VIII. Sum up what the following text said about:

1. The British banking system today.

2. The main function of commercial banks.

3. The sources of making profits.

4. The services rendered by commercial banks.

Banks, like other economic institutions, have been created out of definite needs. The wide use of money and credit increased the importance of financial institutions, which do not serve only as depositories of funds, but also as sources of credit. Without the services of the banks it is unlikely that our modern industrial order could function efficiently.

Today the British banking is a complicated tripartite system like a three-layer cake. The system is headed by the Bank of England.

The other two layers are:

• the commercial or joint stock clearing banks

• specialized banking institutions such as the discount houses and merchant banks.

The commercial or joint-stock banks deal with the general public. Commercial banks are designed to make a profit for their stockholders. They receive money in the form of deposits, savings or repayments from the public, then lend it at interest to borrowers. Profit is made primarily from interest.

A bank may no necessarily be in business to make a profit. Central banks, for example, provide a country with a number of services, while development banks exist to increase the economic growth of a country and raise the living standard of its population. On the other hand, the aim of commercial banks is to earn profits. They therefore provide and develop services that can be sold at a price that will yield a profit. Obviously, banks do not keep most of the money they receive; indeed the bank will have on hand only enough to pay those customers who want to withdraw their money on a given day. A modern bank usually needs no more than 2 percent of its money in cash. Yet law inquires this same bank to deposit a sixth or seventh of its resources in non-earning funds.

Commercial banks render various services to companies and individuals. Some of the services are:

• to receive or accept from their customers the deposit of money

• to collect and transfer money both at home and abroad against deposit and current accounts

• to provide overdrafts to both personal and business customers

• to lend loans to their customers

• to exchange money

• to supply economic information and to prepare economic reviews to be published

• to make foreign exchange transactions, including spot transactions, forward transactions and swap transactions

• to issue various banker’s cards

A commercial bank which provides the same range of services year after year is less likely to be successful than one which assesses changes in the demand for its products and which tries to match products to its customer’s needs. New services are constantly being introduced and developed by commercial banks, and the full-service philosophy of many banks means that they are akin to financial supermarkets, offering a wide variety of services.