Regulations of the commercial banking sector.

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REGULATIONS OF THE COMMERCIAL BANKING

Introduction

Commercial banking has become an essential sector of the modern economy. Although in some small or not enough “advanced” countries it may not be as developed as in others, there is a very small possibility that a country can do without its services completely. In the advanced economies, practically every government department, business organisation, institution and private individual needs, and has, a bank account. This assignment aims to cover some general points about the regulations of the commercial banking. These main points are the reasons why these regulations were implemented, how they were implemented and to what extend they were implemented.

        Furthermore this assignment will try to explain the role of commercial banking in the market and what the effects of its regulations are. It will explain why the regulations were implemented after the Great Depression and what is their purpose.

What is commercial banking?

The main functions of modern conventional commercial banks as they exist today include providing what is called current account facilities, money transfer services, and accepting funds into savings accounts. Commercial banking includes

  1. granting loans and advances
  2. facilitating import-export transactions
  3. buying and selling foreign currency
  4. discounting and negotiating promissory notes, drafts, bills of exchange and other evidence of debts
  5. receiving deposits
  6. buying and selling gold or silver bullion
  7. Lending money against securities consisting of personal property of first mortgages on improved real estates and the insured improvements thereon.

Current account facilities include accepting cash deposits into an account or allowing withdraws from it as when required the whole of the amount or just a portion of it. A cheque can also be used to instruct the bank to pay another person or receive payments made by others into your account. This ability to pay and receive without carrying money is a great benefit to transacting business whatever this is, personal or institutional. Individuals use their current account to receive their wages and to pay their bills. Businesses and institutions on the other hand, use the current account to make payments for the goods and services that they receive from individuals (wages) or other institutions, and to receive payments for the goods and services they provide individuals or other institutions. This whole system is quicker, safer, and much less expensive. The transactions with cheques can be made between two people even if they are from different banks and even if we are talking about banks that are in different countries.

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Another way of transferring money even without a bank account is through the bank’s money transfer arrangements, which include money orders, pay orders, bank drafts, mail and telegraphic transfers, electronic transfer etc, within and outside the country. There are also other bank guaranteed payment facilities which greatly facilitate import-export trade.

Banks also accept funds from the public and businesses into saving accounts, keep them safe and pay an interest rate on them. With these funds, that are not small amounts, the banks grant loan to borrowers to whom the banks charges an interest rate, which is greater than the interest ...

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