Banking services: definition and meaning of terms


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The bank is by its very nature an enterprise that has the task of providing, as banking services to its customers, means of payment and intermediation between supply and demand for capital.


Definition of banking services

For the banking services provided, the bank is remunerated by customers through the interest rates collected through the use of the capital raised and commissions for transactions carried out on behalf of customers.

The main costs for banks are represented by personnel and maintenance costs of the various offices and branches, by the management maintenance, updating of the IT network available to each bank, by the interest rate paid to depositors as a consideration for funding obtained through opening of bank current accounts, issue of certificates of deposit and bonds, repurchase agreements and other bank products.


Spread meaning

The English term 'spread' defines the difference between the active rates charged to customers and the active rates credited to them, the higher this difference the greater the bank's revenues will be suitable for generating profits once all fixed costs are covered.

Banking operation

All current banks generally also offer many ancillary services, including asset investment management, currency exchange, export credit, checkbooks, cashiers checks, credit and debit cards or debit cards, safes for safekeeping of valuables. , buying and selling government bonds, bonds, shares, mutual funds and sicavs.

For several years, for each customer of the bank, there has been the possibility of carrying out autonomous banking operations of various types even at agencies closed through ATMs, the bank's website, dedicated telephone numbers or call centers.


The bank uses financial advisors to collect savings outside the physical location by proposing investments and opening a current account.

Mandatory reservations

By law, each bank is obliged to hold cash reserves in order to deal with any simultaneous requests for payment and return of funds from account holders.

Such bank reserves, being purely theoretical the possibility that customers all request the return of the money paid together, would be able to cover only a small part of the deposits.


Central Bank

In each state there is a Central Bank that regulates all banks and issues or withdraws, in a monopoly regime, the current currency.

Italian law obliges banks to hold mandatory reserves with the Central Bank to compensate for an inflation effect that every currency issue generates.

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Online Banks

With the advent and exponential growth of the Internet, online banks have also grown, defining themselves as credit institutions without branches in the area and operating exclusively via the web.

Internet bank customers carry out all operations exclusively by means of a computer connected to the internet and present all the other features and offers of traditional banks but with significant cost benefits.

Online banks offer above-average interest rates and, in some cases, zero-expense accounts, thanks to the sharp reduction in costs due to the absence of branches, fewer staff and rationalization of all internal processes on a centralized IT network .

By law, these types of banks have at least a registered office in the territory where they operate.

Banking transparency

The term "banking transparency" indicates all the information useful to make the relationship between the customer and the bank as clear as possible.

For example, in each bank contract, the debit and credit rates applied must be indicated, with confirmation communication or updates to be sent to the customer annually, the commissions provided and the price of each individual transaction with indication of the currency applied.

Contracts must be drawn up in writing with delivery of a copy to the customer.


Government bonds

Government bonds are nothing more than bonds issued by the state that receives a loan from the purchaser of the security.

Each government bond is issued on maturity, when the state reimburses the capital invested plus the interest accrued.

Depending on the method of calculation and disbursement of interest to be paid, government bonds are divided into three categories.

There are, for example, fixed rate securities such as BTPs or multi-year treasury bonds, variable rate securities such as Cct or treasury credit certificates, zero coupon securities such as Bots or ordinary treasury bonds that have no coupon.

In the case of Bots, interest is represented by the difference in price between the purchase value and the redemption value which corresponds to the nominal value.

Markets

The market is a physical or virtual place where economic exchanges of various kinds take place and the matching of supply and demand implemented by sellers and buyers.


A market should be competitive, that is, made up of many buyers and sellers to ensure that none of them can have a decisive influence on prices.

Some markets, even if they are made up of many producers, are not competitive due to the creation of special cartels or agreements that have the purpose of influencing the prices to your liking, just think of the seven sisters that condition the world oil market.

Financial investments

The term investment indicates that operation which has the main purpose of increasing the value of tangible assets or sums of money.

Each investment always involves a certain amount of risk in relation to a series of random elements relating to the possibility of the occurrence of unexpected negative events.

Introduction to Investment Banking (September 2022)


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