ENGLISH FOR BUSINESS PENG 1200

UNIT 14

Banks and Financial Institutions

Commercial Bank* - a bank with branches in many different places that offers
services to people and businesses, for example, keeping money in accounts and
lending money
Hedge Funds** – funds that pool (საერთო ფონდში აერთიანებენ) money from
investors and invest in securities or other types of investments with the goal of
getting positive returns
Investment Bank*** - a bank that helps companies and organizations to buy and
sell shares, bonds, etc.; helps companies to buy or merge (შერწყმა; გაერთიანება)
with other companies and deals with other investments for businesses and private
investors
Private Bank**** - a bank that is owned by one person or by a small number of
shareholders. It is not owned by a government and basically provides financial
advice and services for people who have a lot of money
Stockbroker***** – ბირჟის მაკლერი
Intermediary - შუამავალი
Non-bank financial institution****** – a financial institution that does not have a
full banking license and cannot accept deposits (დეპოზიტი, ანაბარი) from the
public. However, NBFIs do facilitate alternative financial services, such as
investment (both collective and individual), financial consulting, brokering
(ბროკერობა; მაკლერობა; შუამავლობა), money transmission (ფულის
გადაგზავნა), and check cashing (ქვითრის განაღდება). NBFIs are a source of
consumer credit (along with licensed banks). Examples of nonbank financial
institutions include insurance firms, venture capitalists (მეწარმე ან კომპანია,
რომელიც ინვესტირებას ახდენს ახალ ან სარისკო წამოწყებაში), currency
exchanges, some microloan organizations, and pawn shops (ლომბარდი). These
non-bank financial institutions provide services that are not necessarily suited to
banks, serve as competition to banks, and specialize in sectors or groups
Retail banks (a bank that provides services to the public and to small businesses
rather than to large companies or organizations) or commercial banks* (often
called High Street banks in Britain) receive deposits from, and make loans to,
individuals and small companies. Investment banks*** work with big companies,
giving financial advice, raising capital by issuing stocks or shares and bonds,
arranging mergers and takeover bids (კომპანიის შთანთქმა: აქციათა პაკეტის
შეძენა მასზე კონტროლის გახორციელების მიზნით), and so on. They also
generally offer stockbroking and portfolio management (the activity of managing a
collection of shares and other investments that are owned by a particular person or
organization) services to rich corporate and individual clients. Wealthy individuals
can also use private banks****, which provide them with banking and investment
services, and hedge funds**, which are private investment funds for wealthy
investors (both individuals and institutions) that use a wider variety of (risky)
investing strategies than traditional investment funds, in order to achieve higher
returns.

In the USA, where many banks went bankrupt following the Wall Street Crash in
1929, a law was passed in 1934 (the Glass-Steagall Act) that separated commercial
banks and investment banks or stockbroking firms. For the rest of the 20th century,
there were regulations in the US, Britain and Japan that prevented commercial
banks from doing investment banking business. In other countries, including
Germany and Switzerland, large banks did all kinds of financial business. But
starting in the 1980s, many rules were ended by financial deregulation, and Glass-
Steagall was repealed (ანულირება, გაუქმება) in 1999. Large banks became
international conglomerates (a very large business organization consisting of
several companies that often sell different types of product or service) offering a
complete range of financial services that were previously provided by banks,
stockbrokers***** and insurance companies.

Islamic banks, in Islamic countries and major financial centres, offer interest-free
banking. They do not pay interest to depositors (მეანაბრე; კაპიტალის
შემომტანი; ინვესტორი) or charge interest to borrowers, but invest in companies
and share the profits (or losses) with their depositors.

Some car manufacturers, food retailers and department stores now offer products
like personal loans, credit cards and insurance. Technically these are not banks but
non-bank financial intermediaries******.
The Subprime Crisis and the Credit Crunch

Subprime - სუბსტანდარტული: used to describe the practice of lending money,

especially to buy a house, to people who may not be able to pay it back
Credit crisis/Credit Crunch/Credit squeeze* - კრედიტის შეფერხება/ კრიზისი:
economic conditions that make financial organizations less willing to lend money,
often causing serious economic problems
Subprime borrower** - a person who may fail to repay a loan or meet contractual
obligations, thus presenting a greater risk to a lender
Credit rating - a calculation of someone's ability to pay back money that they have
borrowed
Bond /bɒnd/- ობლიგაცია: an official paper given by the government or a
company to show that you have lent them money that they will pay back to you at a
particular interest rate
Mutual - 1) ორმხრივი, თანაზიარი; 2) საერთო, ერთობლივი
Mortgage-backed securities / MBS*** - გირავნობის საბუთით
უზრუნველყოფილი ფასიანი ქაღალდები: groups of loans on business properties
that are combined to make bonds and sold as investments
Underlying - ძირითადი
Underlying mortgage**** - a mortgage or a piece of a mortgage that gives value to
the security. For example, if a bank sells the mortgage on Joe's house to another
bank and that bank repackages it into an MBS, Joe's mortgage is one of the
underlying mortgages for the security

When American house prices began to fall in 2007, many 'subprime' borrowers**,
defined as those with poor credit ratings (კრედიტუნარიანობის დაბალი
მაჩვენებელი) and consequently a high risk of default (გადაუხდელობა;
ვალდებულების შეუსრულებლობა), stopped paying their mortgages (იპოთეკა:
an agreement that allows you to borrow money from a bank or similar organization,
especially in order to buy a house, or the amount of money itself), as their debt was
greater than the value of their house. Unfortunately, the institutions which had
issued the mortgages had created financial products called mortgage-backed
securities (MBS)*** and collateralized debt obligations - CD0 (ობლიგაცია
უზრუნველყოფილი სხვა ფასიანი ქაღალდებით: combinations of bonds and other
assets with different levels of risk that are put together to create new investments),
which had been bought by many financial institutions including investment banks,
hedge funds, insurance companies, pension funds, mutual funds (a type of
investment vehicle where the money collected from various investors is pooled
together to invest in different assets including bonds, stocks, and/or different
companies. Mutual funds are professionally managed by Fund Managers, who allocate
the fund's assets and attempt to produce returns for investors), and so on. This
process is called securitization (სექიურიტიზაცია): financial assets like mortgages
which produce a cash flow are pooled (grouped together) and converted into
securities that are then sold to investors.

MBSs and CD0s give their buyers the right to receive the payments on the
underlying mortgages****, and banks bought them because they believed that
house prices would continue to rise, and households (ოჯახები) would continue to
make their mortgage payments. But when many subprime borrowers stopped
paying, the value of subprime related securities fell dramatically. Many banks in the
USA, Britain and elsewhere lost billions of dollars on their MBSs; some went
bankrupt, and others had to be rescued by governments.
It is estimated that banks around the world will eventually have to write off
(ჩამოწერა) $ 1.5 trillion of worthless subprime MBSs (now often referred to as
'toxic debt'). These losses destroyed much of the capital of the world banking
system, leading to a credit crisis or a 'credit crunch'*: a massive reduction in the
amount of credit available for banks to lend to other banks, businesses and
households.