DEPOSITORY

FINANCIAL Chapter 6

INSTITUTIONS
 THE ORIGINS OF BANKING AND DEPOSITORY
INSTITUTIONS

Historically, societies have recognized the inconvenience of

barer. Initially, people instead used un-coined metals (bullion)
as money. Bullion, however, has serious disadvantages as a
medium of exchange.
Coinage, however, represented a solution to the problems of
using bullion as money. A seal imprinted upon a lump of metal
certified a specific weight of metal of a given purity. The names
of many present-day monetary units (pounds, lira, and shekels)
were originally units of weight.
Among the more significant were the possibility of the
theft of money that was being transported or stored,
transportation costs, and the absence of an interest return
on the coins.
 1. THE GOLDSMITH
Largely as a result of the danger of theft, the practice arose of
leaving precious bullion and coins in the custody of goldsmiths.
Because goldsmiths worked with those precious metals, they of
necessity, had established the means to protect them.
This made goldsmiths the natural choice to receive and store
monetary gold and silver (for a fee) for war) owners.
This made goldsmiths the natural choice to receive and store monetary gold
and silver (for a fee) for wary owners.
 THE GOLDSMITH
BECOMES A BANKER
If goldsmiths could predict the amount by which withdrawals
were likely to exceed deposits, then they could hold a
contingency coin reserve.
The goldsmiths wrote warehouse receipts for a much larger
value than the value of the precious metal coins they were
safeguarding.
Thus, the value of "money" (or reserves) the goldsmiths had on
hand to meet withdrawals in gold and silver coins represented
only a fraction of the value of all the warehouse receipts they
had issued.
The concept of fractional reserve banking was born, and
goldsmiths were transformed from mere custodians of specie
into bankers.
 TYPES OF BANK
• SAVINGS BANK
• COMMERCIAL BANKS
• INDUSTRIAL BANKS OR DEVELOPMENT
BANKS
• LAND DEVELOPMENT BANKS OR
AGRICULTURAL BANKS
• INDIGENOUS BANKS
• CENTRAL/FEDERAL/ NATIONAL
BANKS
• COOPERATIVE BANKS
• EXCHANGE BANK
 SAVINGS BANK
• Saving Banks are established to create
saving habit among the people.
• These banks are helpful for salaried people and
low income groups.
• The deposits collected from customers
are
invested in bonds, securities etc.
 COMMERCIAL BANKS
• Commercial banks are established with an
objective to help businessman.
• These banks collect money from general
public.
• It give short-term loans to businessmen by
way of cash-credits, over drafts etc.
• It provide various services like
• collecting cheques,
• bill of exchange,
• remittance money from one place to another
place.
INDUSTRIAL BANKS /
DEVELOPMENT
BANKS
• These banks collect cash by issuing shares
and debentures.
• It provide long-term loans to industries.
• The main objective of these banks is to provide
• long-term loans for expansion and
• modernisation of industries.
 LAND DEVELOPMENT
BANKS /
AGRICULTURAL BANKS
• Land mortgage of land development banks
are also known as Agricultural Banks.
• These are formed to finance agricultural sector.
• It also help in land development.
 INDIGENOUS BANKS

• It means ‘Money Lenders’.

• They collect deposits from general public and
grant loans to the needy persons out of their
own funds as well as from deposits.
• These indigenous banks are popular in villages
and small towns.
• It perform combined functions of trading and
banking activities.
CENTRAL/FEDERAL/ NATIONAL
BANKS
• Every country of the world has a Central
bank.
 In India, RBI

 In USA, Federal Reserve

 In UK, Bank of England

• These central banks are the bankers of the other

banks.
• It provide specialised functions i.e.

 Issue of paper currency

 Working as bankers of government,

• Central
 Supervising
A
Bank
and is a
controlling non-profit
foreign exchange.
institution.
making
• It does not deal with the public, it deals
with other banks.
 COOPERATIVE BANKS

• Cooperative Banks are registered under

the
Cooperative Societies Act, 1912.
• It give credit facilities to small framers, salaried
employees, small-scale industries etc.
• These banks are available in rural as well
as urban areas.
 EXCHANGE BANK

• These banks are mainly concerned

with
financing foreign trade.
• Hong Kong Bank, Bank of Tokyo, Bank of
America are the examples of Foreign Banks
working in India.
FUNCTIONS OF
COMMERCIAL BANKS
THE THRIFT INDUSTRY

Thrift institutions—savings banks, savings and loan

associations, and credit unions—really represent two
groupings of institutions, even though they commonly are
lumped together.
All these institutions are similar to each other—and to
commercial banks—in that they issue checking and
other deposits as liabilities and hold securities and make
loans.
What is it that distinguishes it from commercial
banks?
The answer is legal regulation. Under the law. thrift
institutions are limited in their ability to allocate their
THRIFT INSTITUTIONS
Any depository institution (that is, any institution with the
legal right to issue liabilities with unrestricted checking
privileges) that is not a commercial bank.

As a whole, thrift institutions are not in good shape.

The reason is that the bulk of thrift institutions are
S&Ls and savings banks, and many of these
institutions have faced severe crises in recent years.
THRIFT INSTITUTIONS
Thrifts are generally smaller, local institutions and
don't have the reach and resources of large banks with
branches nationwide. However, thrift banks are
increasingly offering the same services as commercial
banks, creating less of a distinction between the two.