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EARSO UG

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Overview

Chapter 1: Meaning and Concept of Banking Definition of a Bank:  A bank is legally registered to accept funds and other valuables for safekeeping. It is often known as an acceptance house. A bank is a lawfully chartered outfit, with stakeholders broken into shareholders, bondholders (investors), directors, officers, and other employees, including the superstructure. A bank could be privately or publicly owned. Meaning of Banking:  This is the process of legally organizing an outfit to create, safe-keep, manage and transfer money from one person to another, from business to business or between surplus and deficit spending economic agents/ units. The bottom line of the banking business is an efficient payment and intermediary system. The payment system deals with how wealth moves about, shifting from one owner to another regarding cash movement. Wealth is transferred when some legal rights or property in a good is handed over to another person. However, the focus of this unit is the payment system that considers the idea of a promise to pay or payments made by one party to another concerning a certain amount of money. Without any equivocation, the earliest payment method outside barter was straightforward cash payment. Concerning overall transactions in our system, payment by cash still ranks highest in volume, irrespective of the government's cashless/ light policy. However, the aggregate value of money that moves from one end to the other in a given day is insignificant. However, transferring a large amount of funds could be more attractive due to the risk of theft or loss when sending them to others in far-off locations.    Types of banks There are different types of banks, some of them are:
  1. Central bank
  2. Commercial banks
  3. Merchant banks
  4. Mortgage banks
Services offered by a commercial bank Some services offered by a commercial bank are:
  1. Provision of loans and advances to customers
  2. Creation of savings and current accounts for customers
iii.       Creation of fixed deposit account (Time Deposit)
  1.       Accepting deposits
Process of opening an account with a commercial bank When you open a new bank account, you'll need to provide the bank with some documentation so they can verify your identity. Have the following items ready:
  • A government-issued ID (such as a driver’s license, passport, or military ID)
  • Your identification number
  • Proof of your physical and mailing address
  • An initial deposit (if required)
You can use another form if you don’t have a government-issued ID. Ask your bank what other forms of identification it can accept. Depending on your situation, your identification number may be your Social Security number, alien identification card number, Individual Tax Payer Identification Number, or another government-issued ID number. You'll need to provide this information in some form, whether you're opening up an account online or in person.   Documentation required for processing a personal loan  The documents you need when applying for a loan can vary from one lender to another. However, most lenders require a standard set of personal loan documents. These are essential for evaluating your creditworthiness and overall suitability for a loan. The documentation process offers a complete view of your financial circumstances, reducing the risk for you and the lender. Beyond the core documents, lenders may also request additional information depending on the purpose of the loan. Overall, the aim is to provide a clear picture of your financial standing.

Proof of Identification

Lenders will require a valid government-issued ID to verify your identity and ensure you meet the legal requirements for borrowing. In many cases, you may need to provide a second form of identification. Generally acceptable forms of ID include the following:
  • Valid driver’s license
  • Birth certificate
  • Passport
  • State-issued ID
  • Social Security card
  • Certificate of citizenship

Proof of Income

Personal loans can sometimes be more challenging because collateral is optional to secure the loan. Most lenders will need to verify you have a steady source of income that enables you to repay the loan. Proof of income documents could include the following:
  • Recent pay stubs (past 30 days)
  • Copies of tax returns (usually two years’ worth)
  • Copies of W-2s or 1099s (usually two years’ worth)
  • Recent bank statements (past two to three months)
  • Current employer verification letter

Proof of Address

Lenders typically require proof of address to confirm your contact information and establish your residence. Evidence of your address also aids the lender in assessing the stability of your living situation. Proof of address will need to display your full name and address. Generally accepted documents include the following:
  • Recent utility bill
  • Copy of your lease agreement
  • Voter registration card
  • Mortgage statement
  • Bank statement
  • Property tax receipt

Loan Application

A loan application is a standard requirement across the lending industry, although applications may differ from lender to lender. The application typically requires personal identification information, income verification, employment history, credit history and the desired loan amount. The lender may also inquire about the purpose of the loan, the borrower’s existing debts and other relevant financial obligations.

Financial Statements

If you are self-employed or have additional income sources, you may be asked to provide financial documentation, such as profit and loss statements, tax documents or balance sheets. These documents should offer a clearer picture of your financial situation.

Social Security Number

Your Social Security number is used to check your credit history and credit score. It can also be cross-referenced with other documents to prove your identity. This process helps prevent identity theft or fraudulent applications, safeguarding you and the lender. How to close an account Call your old bank or send a secure message through your online banking portal to confirm that there are no pending transactions or outstanding charges and that the account balance is zero. Then, you can ask the bank to close the account. Some banks require written notice that you want to close your account. How banks support SMEs Banks lend to SMEs to externally finance them as entrepreneurs, who rely heavily on straight debt to fulfil their start-up, cash flow, and investment needs.   Assignment  What is a bank? What is banking? Discuss the process of opening a bank account How can you close your account?

Course Content

Chapter 2: The Central Bank
According to De Kock, a Central is a bank that constitutes its country's apex monetary and banking system and performs as best as it can in the national economic interest.

  • Central Bank
  • Assignment

Chapter 3: Commercial & Merchant Banks
Commercial and merchant banks are Europe’s foremost financial institutions; they render several vital banking services to individuals and corporate entities. Over the years, they have become indispensable to our everyday business activities, facilitating business activities, economic growth, and better living standards.

Chapter 4: Other Banks (Specialized)
Apart from commercial and merchant banks, several other banking institutions exist, usually to render more specialized services that commercial and merchant banks may need to cover adequately. The functions of these specialized banking institutions vary according to their types; for example, development banks are focused on providing finance to specific vital sectors of the economy, such as the agriculture industry, etc. Micro-finance banks are focused on Small and medium-scale enterprises.

Chapter 5: Money market instruments
Short-term funds are needed in the public sector, commerce and industry. Business firms require working capital; merchants require short-term financing for activities like inventory procurement. Therefore, to mobilize temporarily idle short-term funds from the surplus economic units to fund production activities, several money market instruments can be utilized.

Chapter 6: Money market institutions
Broadly speaking, there are three major types of financial institution: Depository institution – deposit-taking institution that accepts and manages deposits and makes loans, including bank, building society, credit union, trust company, and mortgage broker; Contractual institution – insurance company and pension fund.

Chapter 7: Taxation
Taxation is a system where individuals and businesses compulsorily pay the government to fund its operations and services. The financial fuel keeps public infrastructure running, from schools and hospitals to roads and necessary systems to ensure public safety.

Chapter 8: Services of financial institutions
Financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, accountancy companies, consumer-finance companies, stock brokerages, investment funds, individual. All financial institutions usually offer basic banking services (checking and savings accounts, consumer loans, etc.) with larger ones offering a fuller range of services (credit cards, mortgages, foreign currencies, etc.)

Course Features

Funded by the European Union. Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union or the European Education and Culture Executive Agency (EACEA). Neither the European Union nor EACEA can be held responsible for them. 2022-1-DE02-KA220-VET-000086853

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