Discuss and place your argument showing any significant difference between Bank vs. Non-Bank Financing.
In Bangladesh nowadays special commercial banks and the non-banking financial institutions are working there commerce. And each organization now concerned in attracting the retail consumers that means the middle earnings group people of the nation. To represent their thought the sells personnel of different association try to knock each possible door. These actions of different organization increase the interest regarding this sector. As both banks and non-banking financial institutions are in the market, so it makes misunderstanding to the general people about the actions of these organizations.
A bank is a financial institution and a financial mediator that accepts deposits and channels those deposits into lending activities, either directly or through capital markets. (A bank connects customers that have capital deficits to customers with capital surpluses.)
The definition of a bank varies from country to country. See the relevant country page (below) for more information.
Under English common law, a banker is defined as a person who carries on the business of banking, which is specified as:
- conducting recent accounts for his/her consumers,
- paying cheques drawn on him/her
- Collecting cheques for his/her clients.
Non-bank financial institution:
A non-bank financial institution (NBFI) is a financial institution that does not have a full banking authorization or is not supervised by a national or international banking autocratic agency. NBFIs make possible bank-related financial services, such as market brokering, risk pooling, investment, contractual savings. Examples of these include insurance firms, cashier’s check issuers, payday lending, micro loan organizations, and check cashing locations.
Bank vs. Non-Bank Financing:
Economy of Bangladesh is mainly jeopardized by the banking financial institutions. The banking financial structure in Bangladesh comprises of 4 state-owned commercial banks (NCBs), 13 foreign commercial banks, 29 private local commercial banks, and 5 state-owned focused banks with a total of 6156 branches. Contiguous to the current free market economy and globalization idea, privatization of banking segment is getting abortive, and performance and self-assurance of personal banks are growing day by day. The four NCBs control 52.7 percent of overall bank deposit on June, 2001 from 54.5 percent at the end of the prior year and accounted for 45.5 percent of overall bank credit at the end of 2000/2001 from 47.6 percent of the prior financial year. Nevertheless, a significant portion of loans is non-performing. Given the situation, Bangladesh economy predominantly is passing a transitional phase to restructure the financial part. The overall picture is that personal banking financial Institutions (PBFIs) are prone to materialize slowly to capture the market shares of the NCBs. The publicly owned baking division is required to follow the government advice strictly in doing their business as well as is performing as a foundation of government’s deficit financing. However, a rapid and complete restructuring is needed to get the profit of the market-based economy.
Additionally, PBFIs are being restricted with short-term finance because of the apprehension that the loan will be horrific. In a conference on “Building Sound Finance in Emerging Market Economies” held at IMF headquarter in Washington D.C on June 10-11, 1993, a group of participants viewed that bank lending would be ineffective and injudicious in the transitional period because of the risk of the environment and lack of experienced manpower. They also argued that development of the capital market would get penchant if privatization were consideration as the key part of the economic development. On the other hand, anyone can imagine the need of both banking and non-banking financial institutions for economic development. Banks are the key sources of working capital and provide extremely liquid investment. Additionally, NBF sector is required to enhance the recruitment of word savings and enhance convenience of equity and term finance for the private division plus support services for the capital market. Banks act as the lender of the first remedy of other financial institutions, which ensures its significance in the financial structure. Advancement of the government securities promotes the progress of the money market. In current years, the governance of banks as financial mediators in various developed countries has been reduced a bit with the emergence of the non-banking financial mediators and with the development of the commercial debt market that gives firms straight access to individual savings.
Banking Act 1959:
It can appear as a revelation to find that the Banking Act 1959 (C th) (Banking Act), does not hold a definition of ‘bank’- that term was taken out of the Banking Act in 1999 – even though it does include a definition of ‘banking business’.
This is not because banks have been abolished as a legal notion, although they have been re-named and other institutions brought under the new name. The financial services division reforms of 1998 introduced the idea of an ‘authorized deposit-taking institution’ (‘ADI’). Under 5 of the Banking Act, an ADI is a corporate body endorsed by the
Australian Prudential Regulation Authority (APRA) under 9 of the Banking
Act to bring on the business of banking.
‘Banking Business’ under the Banking Act:
Under section 5(1) ‘banking business’ means:
1) A commerce that consists of banking within the meaning of paragraph 51 (xiii) of the Constitution; or
2) A commerce that is approved on by a company to which paragraph 51(xx) of the Constitution applies and that consists, to any degree of
a. Both taking money on deposit (other than as part-payment for goods or services) and making advances of money; or
b. Other financial activities prearranged by the policy for the purposes of this characterization.
A clear exception from the definition of banking business was the apprehension of banks in the Australian payments system under which payments are made or resources transferred by such mechanisms as the compilation and payment of cheques, direct credits and debits, debit and credit card payments and high value payments.
By the 2001 amendments, the provision of a purchased payment facility
(PPF) is banking business if APRA determines that:
- the facility permits a comparatively wide set of payments to be prepared by a relatively broad class of payers, and
- the buyer may claim payment from the owner of stored value, in Australian currency of all or part of the balance detained
By the 2003 amendments, the acquiring and issuing of credit cards by participants in a chosen credit card plan (such as MasterCard and VISA) became standard activities.
Banking in terms of US:
ABA Section of Business Law offers attorneys of miscellaneous backgrounds general meeting ground to inform themselves and revise their knowledge, as well as to exchange thoughts seek for issues regarding the expression of financial institutions.
The Bank Secrecy Act of 1970 requires U.S.A. financial institutions to support U.S. government agencies to identify and stop happening money laundering. Particularly, the act requires financial institutions to maintain records of hard cash purchases of transferable instruments, file information of cash transactions beyond $10,000 and to account apprehensive activity that might indicate money laundering, tax prevarication, or other criminal activities. Title 12 of the United States Code outlines the role of Banks and Banking in the United States Code.
Banking Companies Act, 1991:
In this Act, except there is anything revolting in the subject –
a) “approved securities” means securities in which a trustee may spend money under clause and for the purpose of section 13 (3) includes such securities as the Government may, by announcement in the official Gazette, pronounce to be approved securities for the purpose of this section.
b) “company” means any company which may be wound up under the Companies Act;
c) “Companies Act”;
d) “demand liabilities” means liabilities which must be met on demand;
e) “scheduled bank” has the equal meaning as in the Bangladesh Bank Order
f) “new bank” means any bank denominated in the Bangladesh Banks (Order, 1972 (P.O. No. 26 of 1972);
The amendment of the Banking Companies Act, 1991 (Act No.14 of 1991) for the purposes hereinafter appearing in Banking Companies (Amendment) Act, 1993.
The amendment of the Banking Companies Act, 1991 (Act No.14 of 1991) for the purpose hereinafter appearing in Banking Companies (Amendment) Act, 1995.
Financial Institutions Act, 1993
Except there is anything revolting in the subject, in this Act-
a) “financing business” means the business carried on by any financial institution;
b) “financial institution” means such non-banking financial institutions, which-
§ create loans and advances for industries, commerce, building construction; or
§ carry out the commerce of underwriting, receiving, investing and reinvesting shares, stocks, bonds, issued by the Government or any governmental organization or stocks or securities or other profitable securities; or
§ carry out repayment transactions including the lease of machinery and equipments; or
§ finance venture capital
c) “credit facilities”
d) “company” means any company registered under the Companies Act;
e) “banking company” means any banking company recognized under the Banking Companies Act;
Difference between Bank and non-bank financial institutions:
- A NBFC is an institute that does not allow consumer cash deposits but provides all financial services except for bank accounts.
- A bank’s main concern is to assist in business transactions and savings/investment activities whereas an non-bank financial institution’s main concern is in the stabilization of the currency
- A bank indulges in a number of activities involving to finance with a variety of customers, whereas an NBFI is mainly apprehensive with the term loan requirements of large enterprises
- A Bank is an organization that accepts consumer cash deposits and after that provides financial services like bank accounts, loans, share trading account, mutual funds, etc.
- A bank interacts straight with the customers whereas an NBFI interacts with banks and governments
- A bank deals with both internal and external customers whereas an NBFI is mainly apprehensive with the finances of foreign companies
It is a hard-hitting task to compare bank and financial institutions due to the fact that there be several financial institutions and all of these vary from banks by a significant amount. In essence, differentiating between banks and financial institutions is parallel to comparing a deposit attractive financial institution with a non-deposit taking financial institution. That’s true to a certain level.
For example, credit unions permit customers to deposit currency, but in order to achieve this facility you have to be a part of this credit union and by becoming a part of the credit union you repeatedly become one of its proprietor. Although banks are deposit taking financial institutions themselves, they can at times be different from other deposit taking financial institutions too.
The extensive development that the economy has undergone more than the last few years has as well made it more susceptible to a number of economic issues. In such conditions, it is better off to make sure that a no-problem future for yourself, and that’s right where knowledge about the fundamentals of economics will come realistic for you. So, it is an important task to understand that all financial institutions are not bank.
Bangladesh Bank (BB), Financial Institutions Department (FID)
United Dominions Trust Ltd v Kirkwood, 1966, English Court of Appeal
Bangladesh Bank (BB) (2002).Annual Report, 2000-2001
Non Bank Financial Institutions (NBFIs), Annual Reports (ARs), Financial Reports (FRs) 1999-2001.
Caprio Gerand, Folkert Landan and Lane Timothy D. (1994). “Building Sound Finance in Emerging Market Economics”, (Proceeding of a conference held in Washington D.C., June 10-11, 1993, IMF).
Detailed description of a wide-ranging database covering the banking industry in over 100 countries see Barth, Caprio, and Levine (2001b).
Abrams, R.K. and M.W. Taylor (2000). “Issues in the Unification of Financial Sector
Supervision,” IMF Working Paper, no.213.
Barth, J.R., G. Caprio Jr., and R. Levine (2001c). “Bank Regulation and Supervision:
What Works Best,” World Bank Policy Research Working Paper, August”
Barth, J.R. (1991). The Great Savings and Loan Debacle, The AEI Press: Washington,
Goodhart, C.A.E. (1995). “Some Regulatory concerns,” London School of Economics
Financial Markets Group, Special Paper, no. 79 (December).
Banking Amendment Regulations 2001 (No 1) (Cth).
Carmichael, Jeffrey, and Michael Pomerleano. “Development and Regulation of Non-Bank Financial Institutions.” World Bank Publications, 2002, 12.
Resulting from the Financial System Inquiry established by the Federal Government on 1996, known as the Wallis Inquiry
Non-Bank Financial Institutions:A Study of Five Sectors; NZ Financial Dictionary, http://www.anz.com/edna/dictionary.asp?action=content&content=non-bank_financial_institution
Naik, A “Bank and Financial Difference”. 2010 (15)
Malloy, Michael P. “Banking Law and Regulation” Aspen publisher, 2009
Erricco, L. and A. Musalem (1999). “Offshore Banking: An Analysis of Micro- and
Macro-Prudential Issues,” IMF Working Paper, Monetary and Exchange Affairs
Clark, A. (2000). “The Role of Regulation in Global Financial Markets,” Remarks presented at the Conference organized by the City University Business School and the University of London, July 13 2000.
Chowdhury A. Jalil. (1999). an Appraisal of Non-Banking Financial Institutions in the Context of Economic Development of Bangladesh, Bank Parikrama, Vol. XXIV, No. 1, March, pp 171-194.
Ministry of Finance (MOF), Government of Bangladesh (GOB). (1998-99, 1999-2000), Activities of Bank and Financial Institutions
 There are many evidences that the banking sector in Bangladesh is in transition. For the fact the privatization process is going on and getting preference among all economic agenda. The number of private banks and their market share in deposit and credit are increasing (BB, 2002, pp-33-34)
 For example: digital cash, stored value cards and travelers cheques.
 Bangladesh Gazette Extraordinary, 30th September, 1993.
 Non Banking Financial Company.
 Naik, A “Bank and Financial Difference”. 2010 (15), p.2.