Banking Articles, Definition, Short notes

Banking Articles, Definition, Short notes

Investment Administration

Branch’s Investment Administration will be comprised of four unit of cell.

01.  Documentation and Custodian Cell.

02.  Disbursement Cell.

03.  Compliance Cell.

04.  Investment Monitoring / Recovery Cell.

AvBb m¤§Zfv‡e `wjj m¤úv`b Documentation

wb‡æ KwZcq Pvh© WKz‡g›U Gi cwiwPwZ I Zvi e¨envi wb‡q Av‡jvPbv Kiv n‡jvt

1.   Agreement (Pzw³ cÎ) t e¨vsK mKj ai‡bi wewb‡qv‡Mi c~‡e© Zvi MÖvn‡Ki mwnZ GKwU Pzw³cÎ mv¶i Ki‡e| µq weµq Pzw³ n‡j Zv‡Z `ª‡e¨i weebY, g~j¨, g~j¨ cwi‡kv‡ai mgqmxgvI Ab¨vb¨ kZ©vejxi D‡j­L _vK‡Z n‡e| Pzw³‡Z Kgc‡¶ `yBRb mv¶x  mv¶i Ki‡eb|

2.   Demand Promissory Note (wWwc †bvU) t wWwc †bvU n‡”Q GKwU kZ©nxb cÖwZÁvcÎ| GwU GKwU n¯তvšতi‡hvM¨ `wjj| wewb‡qvM MÖwnZv  wWwc †bv‡U ¯^v¶i K‡i e¨vs‡Ki A_© cwi‡kv‡ai GKwU kZ©nxb A½xKvi cÖ`vb K‡i|

3.   Demand Promissory Note Delivery letter (wWwc †bvU †Wwjfvix  †jUvi) t MÖvnK e¨vs‡Ki  K‡Q wWwc ‡bvUwU †h †¯^”Qvq cÖ`vb K‡i‡Q Zv cÖgvb Kivi Rb¨ Forwarding letter wnmv‡e wWwc †bvU †Wwjfvix  †jUvi  e¨envi Kiv nq|

4.   Sanction Letter (gÄyix cÎ) t MÖvn‡Ki Av‡e`‡bi †cÖw¶‡Z e¨vsK wewb‡qvM gÄyi Kivi ci gÄyix c‡Îi `yBwU Kwc MÖvnK‡Ki wbKU †cÖib K‡i, gÄyixc‡Î wewb‡qv‡Mi kZ©vejx D‡jL _v‡e| D³ kZ©vejx D‡j­L‡hvM¨ n‡j MÖvnK gÄyixc‡Îi GKwU Kwc ¯^v¶I K‡i e¨vs‡Ki Kv‡Q †dir †`q| MÖvnK †h gÄyixc‡Îi kZ©vejx ¯^xKvi K‡iB wewb‡qvM wb‡Z cÖ¯‘Z Zv cÖgv‡bi Rb¨ e¨vsK G Kwc msi¶b K‡i|

5.   Letter for Disbursement (wewb‡qvM weZib cÎ) t wewb‡qvM MÖnxZv wewb‡qvM weZi‡bi Rb¨  G c‡Îi gva¨‡g e¨vs‡Ki Kv‡Q Av‡e`b K‡ib hv‡Z cÖgvb Kiv hvq †h, e¨vsK MÖvn‡Ki Aby‡ivaµ‡gB wewb‡qvM cÖ`vb K‡i‡Q|

6.   Letter of Continuity. (‡jUvi Ae Kw›UwbDwU) t G c‡Îi gva¨‡g MÖvnK e¨vs‡Ki Kv‡Q Rvb‡Z Pvq †h, BwZc~‡e© wWwc †bv‡Ui gva¨‡g e¨vs‡Ki A_© cwi‡kv‡ai †h cÖwZkÖ“wZ MÖvnK w`‡qwQj Zv Ae¨vnZ _vK‡e|

7.   Letter of Installment (‡jUvi Ae BbmUj‡g›U) t G c‡Îi gva¨‡g MÖvnK e¨vs‡Ki Kv‡Q GB g‡g© †Nvlbv †`q †h, †m wKw¯—i UvKv h_vmg‡q cwi‡kva Ki‡Z eva¨ _vK‡e|

8.   Agreement for Pledge (cb¨ eÜK Pzw³) t MÖvnK hLb wewb‡qv‡Mi wmwKDwiwU wnmv‡e e¨vs‡Ki Kv‡Q cb¨ eÜK iv‡L , ZLb e¨vsK I MÖvnK GKwU cb¨ eÜK Pzw³‡Z ¯^v¶i Ki‡e| G Pzw³i gva¨‡g MÖvnK‡K cb¨ wewµ K‡i †`bv Av`v‡qi AwaKvi cÖ`vb K‡i|

9.   Trust Receipt (Uªvó wiwmU) t e¨vsK hLb g~j¨ cwi‡kva QvovB, wek¦v‡mi wfwˇZ wewb‡qvM Mªvn‡Ki Kv‡Q gvjvgvj ev gvjvgv‡ji `wjj †hgbt Avg`vbx WKz‡g›U  n¯—vš—i  K‡i ZLb Mªvn‡Ki wbKU †_‡K GKwU Uªvw÷ wiwmU ¯^v¶i Kwi‡q †bq| G wiwm‡Ui gva¨‡g wewb‡qvM MÖwnZv gvjvgvj MÖnb K‡i Ges A½xKvi K‡i ‡h †m e¨vs‡Ki Uªvw÷ wnmv‡e D³ gvjvgvj msi¶b Ki‡e Ges gvjvgvj wewµ K‡i weµq g~j¨ e¨vs‡Ki Kv‡Q Rgv w`‡e| wbw`©ó mg‡qi g‡a gvjvgvj weµq Ki‡Z bv cvi‡jI e¨vs‡Ki cvIbv UvKv cwi‡kva Ki‡e|

10.   Memorandum of Deposit of Title Deed (‡g‡gv‡iÛvg Ae wW‡cvwRU Ae UvB‡Uj wWW) t wewb‡qv‡Mi wmwKDwiwU wnmv‡e hLb †Kvb ¯’vei m¤úwË e¨vs‡K eÜK ivLv nq, ZLb H m¤úwËi gvwjKMb m¤úwËi g~j `wjj e¨vs‡Ki Kv‡Q Rgv ivLvi AwfcÖvq e¨³ K‡i G †g‡gv‡Ûvg ¯^v¶I K‡I| G ¯§vi‡Ki gva¨‡g m¤úwËi gvwjKMb ¯^xKvi K‡ib †h, wewb‡qv‡Mi wmwKDwiwU wnmv‡e m¤úwËi `wjj e¨vs‡Ki Kv‡Q ivL‡Qb Ges AviI ¯^xKvi K‡ib †h, cÖ‡qvR‡b e¨vsK Zvi cvIbv Av`v‡qi Rb¨ `wj‡j ewY©Z m¤úwË weµq Ki‡Z cvi‡eb|

11.   Memorandum of Further Charge ((‡g‡gv‡iÛvg Ae dv`©vi PvR©) t wewb‡qv‡Mi wmwKDwiwU wnmv‡e †Kvb ¯’vei m¤úwË e¨vs‡Ki Kv‡Q eÜK ivLv Ae¯’vq MÖvnK hw` cybivq †Kvb wewb‡qvM †bb Z‡e eÜKx m¤úwËi Dci cieZ©x  wewb‡qv‡Mi wecix‡Z †h PvR© m„wó nq Zv‡K dv`©vi Pvh© e‡j| †g‡gv‡iÛvg Ae dv`©vi PvR© nj GKwU ¯§viKA GB ¯§viK Gi gva¨‡g m¤úwËi gvwjK m¤ú‡`i cieZ©x eÜK Ae¨vnZ‡I‡L cieZ©x wewb‡qv‡Mi wecix‡ZI  H m¤úwË eÜK ivLvi m¤§wZ Ávcb K‡i _v‡Kb|

12.   Affidavit before 1^st Class Magistrate (cÖ_g †kªbxi †gwR‡÷ª‡Ui Av`vj‡_ njdbvgv) t GB njdbvgvi gva¨‡g m¤úwËi gvwjK Av`vj‡Z njd K‡i ej‡eb ‡h mvi m¤úwË m¤úyb© Sv‡gjvgy³ Ges Ab¨ †Kv_vI eÜK †`qv bvB| wZwb AviI  ej‡eb †h, wewb‡qvM`vZv  e¨vs‡Ki Kv‡Q wZwb wewb‡qv‡Mi wecix‡Z eÜK ivLvi D‡Ï‡k¨ wZwb Zvi m¤úwËi `wjj Rgv w`‡q‡Qb| †iwRóªvW© gU©‡MR I cvIqvi Ae GUwb© †bIqv n‡j †m‡¶‡Î Av`vj‡Z njdbvgvi cÖ‡qvRb nq bv|

13.   Letter of Hypothecation (‡jUvi Ae nvB‡cvw_‡Kkb) t MÖvnK hLb wb‡Ri `L‡j ivLv †Kvb A¯’vei m¤ú` wewb‡qv‡Mi wmwKDwiwU wnmv‡e e¨vs‡Ki AwaKv‡i ivL‡Z Pvb, ZLb wZwb †jUvi Ae nvBcw_‡Kkb ¯^v¶i K‡i e¨vs‡Ki Kv‡Q w`‡q _v‡Kb|

14.   Personal Guarantee (e¨w³MZ M¨vivw›U) t ‡Kvb e¨vw³ , †`bv`v‡ii c¶ †_‡K GB g‡g©  M¨vivw›U w`‡Z cv‡ib †h, †`bv`vi †`bv cwi‡kva bv Ki‡j wZwb †`bv cwi‡kva Ki‡eb| M¨viv›Uv‡ii `vwqZ¡ wØZxq ch©v‡qi| wewb‡qvM MÖwnZv e¨vs‡Ki A_© cwi‡kva bv Ki‡j, ZLb M¨viv›Uv‡ii wei“‡× e¨e¯’v MÖnb Kiv hvq|

¯’vei m¤úwË e܇Ki wbqgvejx|

wewb‡qv‡Mi wmwKDwiwU wnmv‡e †Kvb ¯’veb m¤ú` eÜK †bqvi ‡¶‡Î wbæwjwLZ c`‡¶c¸‡jv wb‡Z n‡e t

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2.     mvBU c­vb t

3.     g~j¨vhb mvwU©wd‡KU

4.     g~j `wjj

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6.     bb-BbKve¨ªvÝ mvwU©wd‡KU

7.     ciPv

8.     wgD‡Ukb ciPv

9.     nvjbvMv` LvRbvi iwk`

10. DwK‡ji AvBbMZ gZvgZ

11.  ‡g‡gv‡Ûvg Ae wW‡cvwRU Ae UvB‡Uj wWW

12.  cÖ_g †kªbYi g¨vwR‡÷ª‡Ui Av`vj‡Z njdbvgv

13. gU©‡MR wWW

14. mxgvbv wba©iY

Pledge (law)

A pledge is a bailment that conveys possessory title to property owned by a debtor (the pledgor) to a creditor (the pledgee) to secure repayment for some debt or obligation and to the mutual benefit of both parties.The term is also used to denote the property which constitutes the security. A pledge is type of security interest.

As the pledge is for the benefit of both parties, the pledgee is bound to exercise only ordinary care over the pledge. The pledgee has the right of selling the pledge if the pledgor make default in payment at the stipulated time. No right is acquired by the wrongful sale of a pledge except in the case of property passing by delivery, such as money or negotiable securities. In the case of a wrongful sale by a pledgee, the pledgor cannot recover the value of the pledge without a tender of the amount due.

Definition of 'Prime Rate'

The interest rate that commercial banks charge their most credit-worthy customers. Generally a bank's best customers consist of large corporations. The prime interest rate, or prime lending rate, is largely determined by the federal funds rate, which is the overnight rate which banks lend to one another. The prime rate is also important for retail customers, as the prime rate directly affects the lending rates which are available for mortgage, small business and personal loans.

Default risk is the main determiner of the interest rate a bank will charge a borrower. Because a bank's best customers have little chance of defaulting, the bank can charge them a rate that is lower than the rate that would be charged to a customer who has a higher likelihood of defaulting on a loan.

THE BANKERS' BOOK EVIDENCE ACT, 1891

"Company" means a company registered under any of the enactments relating to companies for the time being in force in Bangladesh or incorporated by any Bangladesh Law;]
(2) "bank" and "banker" mean- any company carrying on the business of bankers, any post office savings bank or money order office:
(3) "bankers' books" include ledgers, day-books, cash-books, account-books and all other books used in the ordinary business of a bank:
(4) "legal proceeding" means any proceeding or inquiry in which evidence is or may be given, and includes an arbitration:
(5) "the Court" means the person or persons before whom a legal proceeding is held or taken:
(6) "Judge" means a Judge of the High Court Division
(7) "trial" means any hearing before the Court at which evidence is taken: and
(8) "certified copy" means a copy of any entry in the books of a bank together with a certificate written at the foot of such copy that it is a true copy of such entry, that such entry is contained in one of the ordinary books of the bank and was made in the usual and ordinary course of business, and that such book is still in the custody of the bank, such certificate being dated and subscribed by the principal accountant or manager of the bank with his name and official title.

Definition of 'Clearing House'

An agency or separate corporation of a futures exchange responsible for settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery and reporting trading data. Clearing houses act as third parties to all futures and options contracts - as a buyer to every clearing member seller and a seller to every clearing member buyer.

A clearing house is a financial institution that provides clearing and settlement services for financial and commodities derivatives and securities transactions. These transactions may be executed on a futures exchange or securities exchange, as well as off-exchange in the over-the-counter (OTC) market. A clearing house stands between two clearing firms (also known as member firms or clearing participants) and its purpose is to reduce the risk of one (or more) clearing firm failing to honor its trade settlement obligations. A clearing house reduces the settlement risks by netting offsetting transactions between multiple counterparties, by requiring collateral deposits (also called "margin deposits"), by providing independent valuation of trades and collateral, by monitoring the credit worthiness of the clearing firms, and in many cases, by providing a guarantee fund that can be used to cover losses that exceed a defaulting clearing firm's collateral on deposit.

Once a trade has been executed by two counterparties either on an exchange, or in the OTC markets, the trade can be handed over to a clearing house, which then steps between the two original traders' clearing firms and assumes the legal counterparty risk for the trade. This process of transferring the trade title to the clearing house is called novation. It can take fractions of seconds in highly liquid futures markets; or days, or even weeks in some OTC markets.

As the clearing house concentrates the risk of settlement failures into itself and is able to isolate the effects of a failure of a market participant, it also needs to be properly managed and well-capitalized^[1] in order to ensure its survival in the event of a significant adverse event, such as a large clearing firm defaulting or a market crash.

 

Definition of 'Bill Of Lading'

A legal document between the shipper of a particular good and the carrier detailing the type, quantity and destination of the good being carried. The bill of lading also serves as a receipt of shipment when the good is delivered to the predetermined destination. This document must accompany the shipped goods, no matter the form of transportation, and must be signed by an authorized representative from the carrier, shipper and receiver.

Investopedia explains 'Bill Of Lading'

For example, suppose that a logistics company must transport gasoline from a plant in Texas to a gas station in Arizona via heavy truck. A plant representative and the driver would sign the bill of lading after the gas is loaded onto the truck. Once the gasoline is delivered to the gas station in Arizona, the truck driver must have the clerk at the station sign the document as well.

ACU in Brief

Asian Clearing Union (ACU) is the simplest form of payment arrangements whereby the participants settle payments for intra-regional transactions among the participating central banks on a multilateral basis. The main objectives of a clearing union are to facilitate payments among member countries for eligible transactions, thereby economizing on the use of foreign exchange reserves and transfer costs, as well as promoting trade among the participating countries. The ACU is a clearing houses/payments arrangements operating in various regions of the world. 

The Asian Clearing Union (ACU), with headquarters in Tehran, Iran, was established on December 9, 1974 at the initiative of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). The primary objective of ACU, at the time of its establishment, was to secure regional co-operation as regards the settlement of monetary transactions among the members of the Union and to provide a system for clearing payments among the member countries on a multilateral basis.

Microfinance

Microfinance is a source of financial services for entrepreneurs and small businesses lacking access to banking and related services. The two main mechanisms for the delivery of financial services to such clients are: (1) relationship-based banking for individual entrepreneurs and small businesses; and (2) group-based models, where several entrepreneurs come together to apply for loans and other services as a group.

In some regions, for example Southern Africa, microfinance is used to describe the supply of financial services to low-income employees, which is closer to the retail finance model prevalent in mainstream banking.

For some, microfinance is a movement whose object is "a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers."^[1] Many of those who promote microfinance generally believe that such access will help poor people out of poverty. For others, microfinance is a way to promote economic development, employment and growth through the support of micro-entrepreneurs and small businesses.

Microfinance is a broad category of services, which includes microcredit. Microcredit is provision of credit services to poor clients. Microcredit is one of the aspects of microfinance and the two are often confused. Critics may attack microcredit while referring to it indiscriminately as either 'microcredit' or 'microfinance'. Due to the broad range of microfinance services, it is difficult to assess impact, and very few studies have tried to assess its full impact.^[2] Proponents often claim that microfinance lifts people out of poverty, but the evidence is mixed. What it does do, however, is to enhance financial inclusion.

Definition of 'Contingent Liability'

A potential obligation that may be incurred depending on the outcome of a future event. A contingent liability is one where the outcome of an existing situation is uncertain, and this uncertainty will be resolved by a future event. A contingent liability is recorded in the books of accounts only if the contingency is probable and the amount of the liability can be estimated.

Investopedia explains 'Contingent Liability'

Outstanding lawsuits and product warranties are common examples of contingent liabilities.

For example, a company may be facing a lawsuit from a rival firm for patent infringement. If the company's legal department thinks that the rival firm has a strong case, and the company estimates that the damages payable if the rival firm wins the case are $2 million, it would book a contingent liability of this amount on its balance sheet. If, on the other hand, the company's legal department is of the opinion that the lawsuit is frivolous and very unlikely to be won by the rival company, no contingent liability would be necessary.

Contingent liabilities are liabilities that may be incurred by an entity depending on the outcome of a future event such as a court case. These liabilities are not recorded in a company's accounts and shown in the balance sheet when both probable and reasonably estimable as 'contingency' or 'worst case' financial outcome. A footnote to the balance sheet may describe the nature and extent of the contingent liabilities. The likelihood of loss is described as probable, reasonably possible, or remote. The ability to estimate a loss is described as known, reasonably estimable, or not reasonably estimable.

Definition of 'Treasury Bill - T-Bill'

A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly have maturities of one month (four weeks), three months (13 weeks) or six months (26 weeks).

T-bills are issued through a competitive bidding process at a discount from par, which means that rather than paying fixed interest payments like conventional bonds, the appreciation of the bond provides the return to the holder

Investors who pay attention to the financial media will often hear three different terms as it relates to government bonds: Treasury bills, Treasury notes, and Treasury bonds. The securities are similar in that all are issued by the United States to fund its debt, and all are backed by the full faith and credit of the U.S. government. There are two key differences between the three types of U.S. Treasuries, however: their maturity dates and the way that they pay interest.

How Treasury Securities Work

First, let’s look at the difference in the maturities of the three types of Treasury securities. Treasury bills (or “T-bills”) are short-term bonds that mature within one year or less from their time of issuance. T-bills are sold with maturities of four, 13, 26, and 52 weeks, which are more commonly referred to as the one-, three-, six-, and 12-month T-bills, respectively. The one-, three-, and six-month bills are auctioned once a week, while the 52-week bills are auctioned every four weeks. Since the maturities on Treasury bills are so short, they typically offer lower yields than those available on Treasury notes or bonds.

Treasury notes are issues with maturities of one, three, five, seven, and 10 years, while Treasury bonds (also called “long bonds”) offer maturities of 20 and 30 years. In this case, the only difference between notes and bonds is the length until maturity. The 10-year is the most widely followed of all maturities; it is used as both the benchmark for the Treasury market and the basis for banks’ calculation of mortgage rates. Typically, the more distant the maturity date of the issue, the higher the yield.

Definition of 'Bank Rate'

The interest rate at which a nation's central bank lends money to domestic banks. Often these loans are very short in duration. Managing the bank rate is a preferred method by which central banks can regulate the level of economic activity. Lower bank rates can help to expand the economy, when unemployment is high, by lowering the cost of funds for borrowers. Conversely, higher bank rates help to reign in the economy, when inflation is higher than desired.

The bank rate can also refer to the interest rate which banks charge customers on loans.

Investopedia explains 'Bank Rate'

In the U.S., the bank rate is often referred to as the federal funds rate. The bank rate is set indirectly by the Federal Open Market Committee (FOMC) which buys or sells treasury securities to regulate the money supply. These actions serve to push the effective federal funds rate closer to the targeted rate. Regulation of the economy through management of the money supply is referred to as monetary policy.

Bank rate, also referred to as the discount rate in American English,^[1] is the rate of interest which a central bank charges on the loans and advances to a commercial bank.

Whenever a bank has a shortage of funds they can typically borrow it from the central bank based on the monetary policy of the country.

The borrowing is commonly done via repos where the repo rate is the rate at which the central bank lends short-term money to the banks against securities. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from the central bank becomes more expensive. It is more applicable when there is a liquidity crunch in the market.

The reverse repo rate is the rate at which the banks can park surplus funds with reserve bank, while the repo rate is the rate at which the banks borrow from the central bank. It is mostly done when there is surplus liquidity in the market.

Definition of 'Liquidity Ratios'

A class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts.

Investopedia explains 'Liquidity Ratios'

Common liquidity ratios include the current ratio, the quick ratio and the operating cash flow ratio. Different analysts consider different assets to be relevant in calculating liquidity. Some analysts will calculate only the sum of cash and equivalents divided by current liabilities because they feel that they are the most liquid assets, and would be the most likely to be used to cover short-term debts in an emergency.

A company's ability to turn short-term assets into cash to cover debts is of the utmost importance when creditors are seeking payment. Bankruptcy analysts and mortgage originators frequently use the liquidity ratios to determine whether a company will be able to continue as a going concern.

Testing a company's liquidity is a necessary step in analyzing a company. Read Liquidity Measurement Ratios to further improve your understanding of these ratios.

Liquidity ratio, expresses a company's ability to repay short-term creditors out of its total cash. The liquidity ratio is the result of dividing the total cash by short-term borrowings. It shows the number of times short-term liabilities are covered by cash. If the value is greater than 1.00, it means fully covered.

The formula is the following:

LR = liquid assets / short-term liabilities.

Garnishment

A legal procedure by which a creditor can collect what a debtor owes by reaching the debtor's property when it is in the hands of someone other than the debtor.

Garnishment is a drastic measure for collecting a debt. A court order of garnishment allows a creditor to take the property of a debtor when the debtor does not possess the property. A garnishment action is taken against the debtor as defendant and the property holder as garnishee. Garnishment is regulated by statutes, and is usually reserved for the creditor who has obtained a judgment, or court order, against the debtor.

A debtor's property may be garnished before it ever reaches the debtor. For example, if a debtor's work earnings are garnished, a portion of the wages owed by the employer go directly to the Judgment Creditor and is never seen by the debtor.

Definition of 'Offshore Banking Unit - OBU'

A shell branch located in an international financial center. Offshore banking units (OBUs) make loans in the Eurocurrency market when they accept deposits from foreign banks and other OBUs. OBUs' activities are not restricted by local monetary authorities or governments, but they are prohibited from accepting domestic deposits.

Investopedia explains 'Offshore Banking Unit - OBU'

OBUs have proliferated across the globe since the 1970s. They are found throughout Europe, as well as in the Middle East, Asia and the Caribbean. U.S. OBUs are concentrated in the Bahamas, the Cayman Islands, Hong Kong, Panama and Singapor

An offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantages. These advantages typically include:

• greater privacy (see also bank secrecy, a principle born with the 1934 Swiss Banking Act)
• low or no taxation (i.e. tax havens)
• easy access to deposits (at least in terms of regulation)
• protection against local, political, or financial instability

Offshore banking has often been associated with the underground economy and organized crime, via tax evasion and money laundering; however, legally, offshore banking does not prevent assets from being subject to personal income tax on interest. Except for certain persons who meet fairly complex requirements,^[1] the personal income tax of many countries^[2] makes no distinction between interest earned in local banks and those earned abroad. Persons subject to US income tax, for example, are required to declare on penalty of perjury, any offshore bank accounts—which may or may not be numbered bank accounts—they may have. Although offshore banks may decide not to report income to other tax authorities, and have no legal obligation to do so as they are protected by bank secrecy, this does not make the non-declaration of the income by the tax-payer or the evasion of the tax on that income legal. Following September 11, 2001, there have been many calls for more regulation on international finance, in particular concerning offshore banks, tax havens, and clearing houses such as Clearstream, based in Luxembourg, being possible crossroads for major illegal money flows.

dormant account

  

Definition

In general, a low-balance savings account which has shown no activity (deposits and/or withdrawals) over a long period, other than posting of the interest and/or service charges. Statute of limitations usually does not apply to dormant accounts, and their funds can be claimed by their owner or beneficiary at any time.

Definition of 'Dormant Account' When there has been no financial activity for a long period of time, other than posting of interest, an account can be classified as dormant. Statute of limitations usually does not apply to dormant accounts, and funds can be claimed by the owner or beneficiary at any time. Many banks have accounts that have been left dormant for years because the account holders have forgotten about them.

Investopedia explains 'Dormant Account' Reversion of a property or monies is transferred to the State if the owner dies intestate without any heirs, or when a bank account remain inactive for a certain number of years and the efforts to contact the account holder prove fruitless. However, the money in the bank account is part of an estate and can be redeemed by beneficiaries.

Definition of 'CAMELS Rating System'

An international bank-rating system where bank supervisory authorities rate institutions according to six factors.

The six factors are represented by the acronym "CAMELS."

Investopedia explains 'CAMELS Rating System'

The six factors examined are as follows:

C - Capital adequacy
A - Asset quality
M - Management quality
E - Earnings
L - Liquidity
S - Sensitivity to Market Risk

Bank supervisory authorities assign each bank a score on a scale of one (best) to five (worst) for each factor. If a bank has an average score less than two it is considered to be a high-quality institution, while banks with scores greater than three are considered to be less-than-satisfactory establishments. The system helps the supervisory authority identify banks that are in need of attention.

The CAMELS ratings or Camels rating is a supervisory rating system originally developed in the U.S. to classify a bank's overall condition. It's applied to every bank and credit union in the U.S. (approximately 8,000 institutions) and is also implemented outside the U.S. by various banking supervisory regulators.

The ratings are assigned based on a ratio analysis of the financial statements, combined with on-site examinations made by a designated supervisory regulator. In the U.S. these supervisory regulators include the Federal Reserve, the Office of the Comptroller of the Currency, the National Credit Union Administration, and the Federal Deposit Insurance Corporation.

Ratings are not released to the public but only to the top management to prevent a possible bank run on an institution which receives a CAMELS rating downgrade.^[1] Institutions with deteriorating situations and declining CAMELS ratings are subject to ever increasing supervisory scrutiny. Failed institutions are eventually resolved via a formal resolution process designed to protect retail depositors.

1)       Legal mortgage and equitable mortgage.

Answer:

Legal Mortgages A legal mortgage is one created under law. Every jurisdiction has its own statutory requirements for legal mortgages. Typically, the party offering real estate is known as the "mortgagor." The party offering money is known as the "mortgagee." In most states, the transfer of interest to the   mortgagee gives the mortgagee the right to take the property only if the mortgagor fails to pay as promised. However, a few states' laws hold that a mortgage is an actual transfer of title, and the mortgagee is the legal owner of the property until the mortgagor pays off his debt.  Equitable Mortgages Equitable mortgages are relationships that don't meet a jurisdiction's legal mortgage requirements. When an arrangement looks like a mortgage and smells like a mortgage, some jurisdictions' courts, known as courts of equity, will recognize the arrangement as a mortgage even though it isn't a legal mortgage. In such cases, courts will usually look for the basic elements of a mortgage: a   debt from one party to another for an amount significantly less than the land is worth and some sort of promise to return the land upon payment. If the court inds these elements, the arrangement will then be treated as a mortgage under law.

2)       Share and mutual fund

Answer:Shares: When companies look for money for their business, they can get it in two ways - either they borrow from a bank and pay interest ("debt") or they ask people like you and me to invest and give us shares ("equity"). A share is a part of a business. Then let's say a friend named Sarath wants to buy a share of this business but the company has got all the money it needs. So Sarath asks us to sell our shares to him, at a higher value than we bought it. So he will own our share of the company, but he's willing to pay more because he thinks the company will do well. Now we make a profit and then Sarath perhaps sells it to someone else at even higher values etc. The company doesn't really get affected because it isn't seeing the money, but the share price goes up as the company starts doing better, and as more people begin to want the shares. Why does the share price go up? The answer is: Perceived value. I may think the company is worth 1 crore, but someone else might think it's worth 2 crores. When my shares reach my valuation I sell, but someone else will think it's a good deal and buy. To organise such buying and selling, there are commercial "stock exchanges". BSE and NSE are some of them, though there are a number of other, smaller exchanges in India. An exchange provides a common place for people to buy or sell shares, with sales happening on an auction basis - buyers bid for shares at a price they are willing to pay, and sellers "ask" for a price from buyers. Exchanges match these prices and share exchanges happen along with payments. "Brokers" facilitate these exchanges, and you pay them a fee as brokerage, part of which goes to the stock exchange as well.

Mutual funds: When a lot of shares are available on stock exchanges, you and me don't know which companies to invest in. But let us say a guy named Sandip Subherwal knows, and keeps track of the market daily. So we give him our money and he buys and sells stocks for us. This is a mutual fund - it's our money (mutual), and Sandip is a Fund Manager. There is a structure to this in India, so a fund manager is part of an "asset management company (AMC)". To protect Sandip from running away with our money, SEBI has some rules in place, and there are "trustees" for every fund. With this structure the AMC issues "units" to us for the money we have invested, and tells us how much our units are worth daily (NAV). We can then choose to exit by selling our units back to the AMC ("redemption").

Mutual funds are not just restricted to shares. They are mutual investments, therefore they can be anywhere. The common ones are equity (stocks and shares) and Debt. Debt markets are where companies borrow money, but they want to borrow huge sums of money that you and I don't have. Therefore, we pool in our money (mutual fund) and give the big whole lot to the company at an interest. Even the government borrows, but again, only large sums of money. Mutual funds can invest there too. Debt is traditionally "safer" than equity since there is a fixed valuation and good rating mechanisms to curb risk; and in the same vein, the profits (and losses) are usually much lesser than equity.

Mutual funds can also invest in other investment avenues, like Gold, Real Estate, Commodities and even in Windmills! Of course, in India only a few of these are available.

Shares are a part of a business, mutual funds are cumulative investment

3)       CRR and SLR

Answer: CRR vs SLR The interest rate that a bank charges to their borrowers varies; it does not remain the same. This is due to a number of reasons, such as: Political gain during elections. Delay by which borrowers spend money on consumer goods.The lender might prefer to use the money in other investments rather than loan it.
The risk that the borrower will die suddenly, go bankrupt, or renege on paying his loan.
Taxes that are placed on profit from interests.Liquidity preference.Inflation, which can be influenced by a bank’s CRR and SLR. In order to control the supply of money in an economy, the central bank of a country charges interest on advances and loans that it grants to commercial banks and other financial institutions. This is called a bank rate or a discount rate.
Bank rates stabilize the exchange rates and control inflation. Any changes in bank rates can affect every aspect of the economy. Take, for example, the case of how petroleum oil prices can affect bank rates. An increase in its price would mean higher interest rates on bank loans as well as personal loans of individual customers.

For the purpose of stabilizing a bank’s assets and interest rates, the central bank of a country requires that they keep a regulatory reserve of the deposits and notes made by customers instead of lending them all out. This required reserve affects how the purchasing power of money is maintained. The higher the requirement, the less money that banks can loan out leading to a lower amount of money created. The cash reserves that banks keep with the central bank is called the Cash Reserve Ratio (CRR).

A CRR requires only a cash reserve so a portion of the cash deposits that banks receive are kept with the central bank as a reserve. A decrease in the CRR would mean a higher amount of money that banks can lend generating more income for them. It controls the liquidity in the economy.

The Statutory Liquidity Ratio (SLR), on the other hand, is cash, precious metals, or certificates that a bank keeps with them as a reserve. It limits the influence that banks have on putting more money into the economy. An SLR guarantees the stability of banks and is used to limit the increase in bank credit. It controls the credit growth in the economy by curbing inflation and encouraging growth. It is also used to make banks invest more in government securities.

Summary

1.“CRR” stands for “Cash Reserve Ratio” while “SLR” stands for “Statutory Liquidity Ratio.”
2.A commercial bank’s CRR is maintained with the central bank while its SLR is maintained at the bank.
3.The SLR can be in the form of cash, precious metals like gold, or securities while a CRR can only be in the form of cash.
4.The CRR controls the liquidity in the economy and staves off inflation while the SLR controls the credit growth in the economy and limits the influence banks have in putting more money into the economy.
5.An SLR is intended to make banks invest in government securities while a CRR is intended to maintain the purchasing power of money in order to curb inflation.

SLR is the minimum amount of cash, gold, and other securities that have to be on hand in relation to a bank's total liabilities and is set by statute. CRR is the percentage of bank reserves to deposits and notes. It changes based upon the operations at the bank.

Cash reserve ratio only involves cash and cash equivalents. The Federal reserve uses something like this to help regulate monetary policy in the US. The higher the required reserve, the less banks are able to loan out. The less they loan out, the less economic activity there is in the country.

(Cash reserves have a multiplier effect in the economy. When a bank loans out $1, it multiplies into many dollars as a result of the next several users down the line. The Federal Reserve can stimulate the economy by lowering the reserve.)

Statutry liquidity ratios act as a second safety net. "Statutory" means that the ratio has been enacted as a law or regulation. "Liquidity" refers to the types of assets required in reserve. They will often include cash, cash equivalents, receivables, investments, and other short-term assets that can be made liquid in a short time without a substantial penalty.

Cash equivalents are usually anything that can be turned into cash in 90 days or less.

Short term assets are usually turned into cash in a year or less.

1)       What do you mean by liquidity crunch/ crisis?

A negative financial situation characterized by a lack of cash flow. For a single business, a liquidity crisis occurs when the otherwise solvent business does not have the liquid assets (i.e., cash) necessary to meet its short-term obligations, such as repaying its loans, paying its bills and paying its employees. If the liquidity crisis is not solved, the company must declare bankruptcy. An insolvent business can also have a liquidity crisis, but in this case, restoring cash flow will not prevent the business's ultimate bankruptcy.

2)       What are the causes of liquidity crisis of a bank?

The causes

A complex cocktail of various economic factors may have made a liquidity crisis inevitable. Since dollarisation, monetary authorities have had no capacity to determine the ‘Currency in Circulation’ (M1) which is essential in measuring liquidity and money supply. As a consequence, the central bank with no real monetary authority has no means to determine the amount of dollars, pounds, rands or pulas in circulation.

Zimbabwe has a history of significant informal transactions outside the banking sector. According to a recent AfDB report, the informal sector accounts for approximately 65 percent of all business transactions in the country. The only current measure of monetary aggregate is bank deposits and saving ratios with last December records suggesting bank deposits of approximately US$3 billion.

About the same amount could be under the mattress, largely because of an overload of policy statements which seems to suggest to the public that Zimbabwean banks are either on the brink or fundamentally unsafe. Liquidity is largely about confidence. A sudden loss of confidence, whether rational or irrational will result in liquidity difficulties.

Another significant problem is the central bank’s loss of lender of last resort function. With loan to deposit ratios above 70 percent, a prevalence of short term deposits and very little of long term savings, liquidity ratios are inevitably stretched. Without the lender of last resort function, it seems implausible to suggest that banks would have a high risk of ‘moral hazard’ with liquidity management. The risk of banks undertaking imprudent liquidity risk management and holding lower levels of liquidity due to the expectation that the central bank will support in the event of a market wide stress should be nonexistent especially when banks expect no such help.

1)       What is consortium financing?

Under consortium financing, several banks (or financial institutions) finance a single borrower with common appraisal, common documentation, joint supervision and follow-up exercises, these banks have a common agreement between them, the process is somewhat similar to loan syndication. consortium is an association of two or more individuals, companies, organizations or governments with the objective of participating in a common activity or pooling their resources for achieving a common goal A group of people or organizations, that consorts with each other in order to achieve a common aim.

What does consurtiam means:

 1. a combination of financial institutions, capitalists, etc., for carrying into effect some financial operation requiring large resources of capital.2. any association, partnership, or union.3. In law . the legal right of husband and wife to companionship and conjugal intercourse with each other: In a wrongful death action the surviving spouse commonly seeks damages for loss of consortium.

2)       What is loan syndication? What are its advantages and disadvantages?

The process of involving several different lenders in providing various portions of a loan. Loan syndication most often occurs in situations where a borrower requires a large sum of capital that may either be too much for a single lender to provide, or may be outside the scope of a lender's risk exposure levels. Thus, multiple lenders will work together to provide the borrower with the capital needed, at an appropriate rate agreed upon by all the lenders.

3)       What are its advantages and disadvantages?

In addition, economists and syndicate executives contend that there are other, less obvious advantages to going with a syndicated loan. These benefits include:

• Syndicated loan facilities can increase competition for your business, prompting other banks to increase their efforts to put market information in front of you in hopes of being recognized.
• Flexibility in structure and pricing. Borrowers have a variety of options in shaping their syndicated loan, including multicurrency options, risk management techniques, and prepayment rights without penalty.
• Syndicated facilities bring businesses the best prices in aggregate and spare companies the time and effort of negotiating individually with each bank.
• Loan terms can be abbreviated.
• Increased feedback. Syndicate banks sometimes are willing to share perspectives on business issues with the agent that they would be reluctant to share with the borrowing business.
• Syndicated loans bring the borrower greater visibility in the open market. Bunn noted that "For commercial paper issuers, rating agencies view a multi-year syndicated facility as stronger support than several bilateral one-year lines of credit."

One advantage of syndication loans is that this market allows the borrower to access from a diverse group of financial institutions,

Disadvantages: time consuming,only for huge borrowings, long and lengthy process and different credit and financial checks,  The disadvantages are that you would need to pay it back and if you don't your things will get taken away. I hope that helped and i'm sorry if i am wrong

What is lead bank system? What is its role in loan syndication?

syndicated loan is one that is provided by a group of lenders and is structured, arranged, and administered by one or several commercial or investment banks known as arrangers. Starting with the large leveraged buyout (LBO) loans of the mid- 1980s, the syndicated loan market has become the dominant way for issuers to tap banks and other institutional capital providers for loans. The reason is simple: Syndicated loans are less expen- sive and more efficient to administer than traditional bilateral,

or individual, credit lines

Money laundering

Definition of 'Money Laundering'

The process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source.

Money laundering is the process of concealing sources of money. Money evidently gained through crime is "dirty" money, and money that has been "laundered" to appear as if it came from a legitimate source is "clean" money. Money can be laundered by many methods, which vary in complexity and sophistication.

Different countries may or may not treat tax evasion or payments in breach of international sanctions as money laundering. Some jurisdictions differentiate these for definition purposes, and others do not. Some jurisdictions define money laundering as obfuscating sources of money, either intentionally or by merely using financial systems or services that do not identify or track sources or destinations.

Many regulatory and governmental authorities issue estimates each year for the amount of money laundered, either worldwide or within their national economy. In 1996, the International Monetary Fund estimated that two to five percent of the worldwide global economy involved laundered money. The Financial Action Task Force on Money Laundering (FATF), an intergovernmental body set up to combat money laundering, stated, "Overall, it is absolutely impossible to produce a reliable estimate of the amount of money laundered and therefore the FATF does not publish any figures in this regard."^[2] Academic commentators have likewise been unable to estimate the volume of money with any degree of assurance.^[3] Various estimates of the scale of global money laundering are sometimes repeated often enough to make some people regard them as factual—but no researcher has overcome the inherent difficulty of measuring an actively concealed practice.

Regardless of the difficulty in measurement, the amount of money laundered each year is in the billions (US dollars) and poses a significant policy concern for governments.^[3] As a result, governments and international bodies have undertaken efforts to deter, prevent, and apprehend money launderers. Financial institutions have likewise undertaken efforts to prevent and detect transactions involving dirty money, both as a result of government requirements and to avoid the reputational risk involved. Issues relating to money laundering have existed as long as there have been large scale criminal enterprises. Modern anti–money laundering laws have developed along with the modern War on Drugs.^[4] In more recent times anti–money laundering legislation is seen as adjunct to the financial crime of terrorist financing in that both crimes usually involve the transmission of funds through the financial system (although money laundering relates to where the money has come from, and terrorist financing relating to where the money is going to).

Enforcement

Anti–money laundering (AML) is a term mainly used in the financial and legal industries to describe the legal controls that require financial institutions and other regulated entities to prevent, detect, and report money laundering activities. Anti–money laundering guidelines came into prominence globally as a result of the formation of the Financial Action Task Force (FATF) and the promulgation of an international framework of anti–money laundering standards.^[12] These standards began to have more relevance in 2000 and 2001, after FATF began a process to publicly identify countries that were deficient in their anti–money laundering laws and international cooperation, a process colloquially known as "name and shame".^[13][14]

An effective AML program requires a jurisdiction to have criminalized money laundering, given the relevant regulators and police the powers and tools to investigate; be able to share information with other countries as appropriate; and require financial institutions to identify their customers, establish risk-based controls, keep records, and report suspicious activities.

Bangladesh

In Bangladesh, this issue has been dealt with by the Prevention of Money Laundering Act, 2002 (Act No. VII of 2002). In terms of section 2, "Money Laundering means (a) Properties acquired or earned directly or indirectly through illegal means; (b) Illegal transfer, conversion, concealment of location or assistance in the above act of the properties acquired or earned directly of indirectly through legal or illegal means". In this Act, "properties" means movable or immovable properties of any nature and description.

To prevent these Illegal uses of money, the Bangladesh government has introduced the Money Laundering Prevention Act. The Act was last amended in the year 2009 and all the financial institutes are following this act. Till today there are 26 circulars issued by Bangladesh Bank under this act. To prevent money laundering, a banker must do the following:

• While opening a new account, the account opening form should be duly filled up by all the information of the customer.
• The KYC must be properly filled.
• The Transaction Profile (TP) is mandatory for a client to understand his/her transactions. If needed, the TP must be updated at the client's consent.
• All other necessary papers should be properly collected along with the voter ID card.
• If any suspicious transaction is noticed, the Branch Anti Money Laundering Compliance Officer (BAMLCO) must be notified and accordingly the Suspicious Transaction Report (STR) must be filled out.
• The cash department should be aware of the transactions. It must be noted if suddenly a big amount of money is deposited in any account. Proper documents are required if any client does this type of transaction.
• Structuring, over/ under invoicing is another way to do money laundering. The foreign exchange department should look into this matter cautiously.
• If any account has a transaction over 10.00 lakh in a single day, it must be reported in a cash transaction report (CTR).
• All bank officials must go through all the 26 circulars and use them.

Definition of 'Nostro Account'

A bank account held in a foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts are used to facilitate settlement of foreign exchange and trade transactions. The term is derived from the Latin word for "ours." Conversely, accounts that are held by the domestic bank in its home country for foreign banks are called vostro accounts, derived from the Latin word for "yours.

Definition of 'Vostro Account'

The account that a correspondent bank, usually located in the United States or United Kingdom, holds on behalf of a foreign bank. A vostro account is one in which the domestic bank (from the point of view of the currency in which the account is held) acts as custodian or manages the account of a foreign counterpart. Also known as a loro account.

The terms nostro and vostro remove the potential ambiguity when referring to these two separate accounts of the same balance and set of transactions. Speaking from the bank's point-of-view:

• A nostro is our account of our money, held by you
• A vostro is your account of your money, held by us

Note that all "bank accounts" as the term is normally understood, including personal or corporate checking, loan, and savings accounts, are treated as vostros by the bank. They also regard as vostro purely internal funds such as treasury, trading and suspense accounts; although there is no "you" in the sense of an external customer, the money is still "held by us".

A client bank elects to open an account - nostro with another facilitator bank, in the absence of having access to primary clearing arrangements (generally with the Central Bank in the country where the currency is considered a local currency), for settling Treasury or Trade transactions. The facilitator bank, may or may not directly be a participant of the primary clearing system or even be in the country of the origin of currency. From the facilitator bank's perspective, the client bank's account is a vostro.

What are the differences between Nostro and Vostro Account?

Answer:

Vostro Account: Account held by a foreign bank in a domestic bank is called vostro account. For example UBS of Switzerland opening an account in SBI in India, this is vostro account for SBI India.

Nostro Account: Account held by a particular domestic bank in a foreign bank is called Nostro account. Here in the above example given in Vostro account the same account is a Nostro account for UBS Switzerland, or if SBI India opens an account in UBS Switzerland then that account is a Nostro account for SBI India. Nostro accounts are usually in the currency of the foreign country. This allows for easy cash management because currency doesn't need to be converted.
Vostro Account: Account held by a foreign bank in a domestic bank is called vostro account. For example UBS of Switzerland opening an account in SBI in India, this is vostro account for SBI India.
Nostro Account: Account held by a particular domestic bank in a foreign bank is called Nostro account. Here in the above example given in Vostro account the same account is a nostro account for UBS Switzerland, or if SBI India opens an account in UBS Switzerland then that account is a Nostro account for SBI India. Nostro accounts are usually in the currency of the foreign country. This allows for easy cash management because currency doesn't need to be converted.

1. What do you understand by the banker’s right of set-off.

Answer:

The right to set off is particularly important when reporting a bank's exposures to regulatory authorities. The situation where a bank has to report that it has lent a large sum to a borrower (and is therefore exposed, because there is a risk that the borrower might default thereby leading to the loss of the bank's or its depositors' money) is thus replaced (where the bank has taken security over shares or securities of the borrower) with an exposure of the money lent minus the value of the security taken.

In law, a set-off is a statutory defense to the whole or to a portion of a plaintiff's claim. It had no existence under the English common law, being created by 2 Geo. II c. 22 for the relief of insolvent debtors, although set-off was recognized in equity. Such a defense could be pleaded only in respect of mutual debts of a definite character, and did not apply to cases in which damages were claimed, nor to equitable claims or demands. By the rules of the Supreme Court (O. XIX. r. 3) a defendant in an action may set off or set up any right or claim by way of counterclaim against the claims of a plaintiff, and such set-off or counterclaim has the same effect as a statement of claim in a cross-action.

What is set-off?
The right of set off is also known as the right of combination of accounts .A bank has a right to set off a debt owing to a customer against a debt due from him.
"A legal set-off is “where there are mutual debts between the plaintiff and defendant, or if either party sue or be sued as executor or administrator one debt may be set against the other "(S.13 Insolvent Debtors Relied Act 1728)
From a commercial standpoint, a right of set-off is a form of security (right) for a lender. It is an attractive security because its realization does not involve the sale of an asset to a third party.
A set-off must be in the form of a cross claim for a liquidated amount and it can be pleaded only in respect of a liquidated claim. Both the claim and the set-off must be mutual debts, due from and to the same parties, under the same right A claim by a person in a representative capacity cannot be set off against a personal claim. Even a claim against the estate of a deceased customer cannot be set off against a debt, which was due to the customer from his banker, during the former’s lifetime, whether the accounts are with one or more offices of the banker, it does not materially affect the position in any way.
A banker’s right of set off cannot be exercised after the money in his hands has been validly assigned or in any case after he has been notified of the fact of an assignment. (Official Liquidator ,Hanuman Bank Ltd. v. K.P.T. Nadar and Others 26 Comp.Cas .81)
Relationship Between Lien And Set-Off
The banker’s right of lien can attach to the money so long as it is earmarked. Where it has ceased to be such a separate earmarked sum, the bank has not the right of set off. ( Radha Raman Choudhary v. Chota Nagpur Banking Association Ltd.(1945) 15 Comp.Cas.4(Pat).
There is a distinction between a banker’s lien and the bank’s right to set-off. A lien is confined to securities and property in bank’s custody. Set-off is in relation to money and may arise from a contract or from mercantile usage or by operation of law
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