Pond - Retail banking.

Retail Banking

3rd edition

Keith Pond, PH.D., FCIB, FHEA

Senior Lecturer in Banking and Economics, Loughborough University

Retail Banking

Global Professional Publishing Ltd 2014

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ISBN 978-1-906403-98-0

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My main aim in writing and updating this text is to provide a basic introduction to retail banking and to give the book an international appeal.

The text draws on the inspiration provided by The Business of Banking that I co-wrote and updated with Geoff Lipscombe in 1998 and 2002. Retail banks have undergone considerable changes in the last twenty years, their capacity to react to economic, environmental, political, social and technological pressures will guarantee further changes in the decades to come. This text substantially revises the earlier versions of the book in its treatment of issues surrounding the industry in .

The text itself is divided into two sections covering banking concepts and the current banking environment and key retail banking operations respectively.

considers what banking actually is and what banks do. Some key economic concepts that underpin much banking activity are discussed in both historical and modern-day contexts. Banking risks are examined as are some of the ways in which banks overcome or minimise the adverse impact of such risks. The section goes on to review the position of banks in the economy, their regulation by national and international bodies and looks at bank profitability from the perspective of bank annual accounts.

covers the key banking transactions, from the basic contract between the banker and customer via the different types of bank account and product offered to the use of payment systems (a necessary adjunct to intermediation). The section goes on to introduce the topic of lending, where some key credit risk tools are reviewed and applied and basic securities, a vital secondary repayment method if credit default occurs.

In both sections it is necessary to focus on particular examples of practice in their own national and regulatory environments. Often the differences in law, history and geography result in different banking responses to familiar questions and challenges. This text cannot promise to be an exhaustive review of all practice but uses specific examples to highlight generic principles and common responses to them. Often the default setting is UK and EU practice as much international law has been inherited by Imperial connections in former times.

Particular attention is drawn to the Further reading and web-links sections at the end of each chapter. The texts and links cited are widely available and often provide more detailed coverage, or specific examples, of the topics in the chapters themselves.

Whilst I have made every effort to ensure that the information contained in the text is accurate and up to date errors will remain and I take full responsibility for them. Feedback on the text is welcomed.

Keith Pond

Loughborough

January 2014

Disclaimer

Throughout the text reference is made to fictitious organisations including Countryside Bank plc and Riverside Bank Pte Limited. These organisations are pure inventions by the author and any resemblance to any organisation carrying these names or any similar names is purely coincidental.

Dedication

To Judy
First, last and always. My inspiration for everything I do.

Acknowledgements

I am grateful to the School of Business and Economics at Loughborough University for allowing re-publication of materials previously used in teaching at that institution.

The Retail Banking Environment

Objectives

After studying this chapter you should be able to:

Describe the environments within which retail banks operate in a number of countries.

Outline the key Political, Legal and Economic issues that impact on bank strategies.

Outline the key Social and Technological issues that help to frame trends in retail banking.

Explain what this book is all about.

Introduction

This opening chapter in analysis of retail banking, drawing together a number of themes from different countries around the world, most of which are to be expanded upon in later chapters.

Key drivers for change during the last 30 years have been regulation and technology. The focus in the immediate aftermath of the credit-crunch of 2007/08 is also regulation. To this analysis are added the areas of macroeconomics, competition and sociological features, including ethical and green issues.

Although the chapter reviews these areas and issues the picture is dynamic and what have been influential issues in the past may not be so in the future. In addition it should be noted that some issues are predictable and long-term in nature, such as population and demographic issues whilst others are less predictable and fast-moving, such as a bank failure. Many issues are complex and interrelated, defying categorisation in the PEST formula. In the EU it can be seen that a social issue, such as the ageing population and pensions crisis, can become a political issue and may result in new legislation or regulation. The political significance is clear, the social feeling intense and the economic impact vital to understand.

Overall, the analysis should set the scene for understanding how and why bank strategies shift in the medium and longer terms and where and how the retail banking features described in this book gain significance. However, retail banking should not be seen from the perspective of the banks alone. Retail banking is about people bank staff and customers, shareholders and pensioners, borrowers and lenders. provides a schematic diagram attempting to show that banks, and their people, are nested within a business framework that exists within a market that is influenced by external forces.