COMMERCIAL AND CENTRAL BANKS

 

A commercial bank is a type of financial intermedi­ary and a type of bank. Commercial bank has two possible meanings:

Commercial bank is the term used for a normal bank to distinguish it from an investment bank. This is what people normally call a "bank". Since the two types of banks no longer have to be separate companies, some have used the term "commercial bank" to refer to banks which focus mainly on companies. In some English-speaking countries outside North America, the term "trading bank" was and is used to denote a commercial bank

Collecting deposits from businesses and consum­ers is the way of raising funds via checkable deposits, savings deposits, and time (or term) deposits. It makes loans to businesses and consumers. It also buys corporate bonds and government bonds. Its primary liabilities are deposits and primary assets are loans and bonds. Commercial banking can also refer to a bank or a di­vision of a bank that mostly deals with deposits and loans from corporations or large businesses, as opposed to normal individual members of the public (retail banking).

A central bank, reserve bank, or monetary author­ity, is an entity responsible for the monetary policy of its country or of a group of member states, such as the Euro­pean Central Bank (ECB) in the European Union or the Federal Reserve System in the United States of America. To maintain the stability of the national currency and money supply is its primary responsibility, but more active duties include controlling subsidized loan interest rates, and acting as a "bailout" lender of last resort to the banking sector during times of financial crisis (private banks often being integral to the national financial system).

It may also have supervisory powers, to ensure that banks and other financial institutions do not behave reck­lessly or fraudulently. A central bank is usually headed by a Governor, President in the case of the European Central Bank, or Chief Executive/Managing Director in the case of Hong Kong Monetary Authority and Monetary Author­ity of Singapore.

In most countries the central bank is state-owned and has a minimal degree of autonomy, which allows for the possibility of government intervening in monetary policy. An "independent central bank" is one which oper­ates under rules designed to prevent political interference; examples include the US Federal Reserve, the Bank of England (since 1997), the Reserve Bank of India (1935), the Bank of Mexico (1993), the Bank of Japan, the Bank of Canada, the Reserve Bank of Australia, and the European Central Bank.

Functions of a central bank carried out by all banks include implementing the basis of monetary policy, having the monopoly on the issue of banknotes, controlling the nation's entire money supply, managing the country's foreign exchange (FX) and gold reserves, etc.

1. Answer the following questions:

 

1. What is a commercial bank?

2. What are its main functions?

3. What can commercial banking refer to?

4. What is a central bank responsible for?

5. Who is a central bank headed by?

6. What is an "independent central bank"? Give the examples.

7. What do functions of a central bank include?

2. Match the terms with their Russian equivalents:

 

1. checkable deposit a. сберегательный вклад

2. time (or term) deposit b.кредитор последней инстанции

3. savings deposit c. срочный вклад

4. monetary policy d. иностранная валюта

5. lender of last resort e. чековый вклад

6. supervisory powers f. полномочия по надзору

7. foreign exchange (FX) g. золотые запасы

8. gold reserves h. денежно-кредитная политика

 

3. Fill in the gaps with the correct variants:

 

1. The term "commercial" was used to distinguish it from...

a. a central bank;

b. an investment bank;

c. Bank of Issue

 

2. Commercial bank's liabilities are... and assets are...

a. deposits; loans and bonds;

b. loans; deposits and bonds;

c. subsidized loans; gold re­serves

 

3. A central bank controls...

a. deposits and loans of corporations;

b. corporate and government bonds;

c. the monetary policy of the country

 

4. A central bank is also...

a. Lender of Last Resort;

b. an independent central bank;

c. a trading bank

 

5. A central bank may have supervisory powers... that banks and other financial institu­tions do not behave recklessly or fraudulently.

a. to provide;

b. to forbade;

c. to ensure