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Impact of Banking Services on Performance - Literature review Example

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"Impact of Banking Services on Performance" paper through a literature review looks into how the services provided by the banks had an impact on their performance. Presently in most jurisdictions, the business of banking is regulated and banks require permission to trade. …
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Impact of Banking Services on Performance
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Download file to see previous pages Many banks offer ancillary financial services to make an additional profit; for example: selling insurance products, investment products or stockbroking. These services have a definite impact on performance. Authorization to trade is granted by bank regulatory authorities and provides rights to conduct the most fundamental banking services such as accepting deposits and making loans. There are also financial institutions that provide banking services without meeting the legal definition of a bank.

Traditionally, a bank generates profits from transaction fees on financial services and from the interest it charges for lending. In recent history, with historically low-interest rates limiting banks' ability to earn money by lending deposited funds, much of a bank's income is provided by overdraft fees and riskier investments. A bank raises funds by attracting deposits, borrowing money in the inter-bank market, or issuing financial instruments in the money market or a capital market. The bank then lends out most of these funds to borrowers.

However, it would not be prudent for a bank to lend out all of its balance sheets. It must keep a certain proportion of its funds in reserve so that it can repay depositors who withdraw their deposits. Bank reserves are typically kept in the form of a deposit with a central bank. This behavior is called fractional-reserve banking and it is a central issue of monetary policy. Some governments (or their central banks) restrict the proportion of a bank's balance sheet that can be lent out, and use this as a tool for controlling the money supply. Even where the reserve ratio is not controlled by the government, a minimum figure will still beset by regulatory authorities as part of bank regulation (Wikipedia, 2006).

The latest information on the banking sector says that worldwide assets of the largest 1,000 banks grew 15.5% in 2005 to reach a record of $60.5 trillion. This follows a 19.3% increase in the previous year.   ...Download file to see next pagesRead More
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