1. SPECIALIZED BANK SERVICES
Banking
6/7/2018
SPECIALIZED BANK SERVICES 9
9.1 International Banking
9.2 Insurance and Brokerage
9.3 Cash Management
9.4 Trusts
Chapter 1

2. 9.1 INTERNATIONAL BANKING
6/7/2018
9.1 INTERNATIONAL BANKING
GOALS
Identify financial entities involved in international banking.
Describe international services offered by banks.
Chapter 1

3. TERMS Sovereign wealth fund Edge corporations Correspondent bank
Currency risk
Country risk
Money laundering
Letter of credit
Foreign exchange rate

4. STRUCTURE OF INTERNATIONAL SERVICES
International lending
World bank
Single Euro Payments Area (SEPA)
Other services

5. FOREIGN BANKS
The responsibility for supervising the branches and agencies of foreign banks operating within the United States belongs primarily to the Federal Reserve.
ROCA
Risk management
Operations
Compliance
Asset quality

6. U.S.-BASED INTERNATIONAL BANKING
Office of the Comptroller of the Currency (OCC)
Charters and supervises U.S. national banks that do international business

7. SOVEREIGN WEALTH FUNDS
The excess cash of a country that is put into a separate fund
Separate from the country’s official currency reserves
Can be used to make investments on behalf of the country

8. OTHER TYPES OF INTERNATIONAL OPERATIONS
Edge corporations
Financial corporations that are federally chartered and allowed to engage only in international banking or other financial transactions related to international business
Correspondent banks
Act as points of contact for other banks that do not have a branch, agency, subsidiary, or corporation in the host country
Subject to the banking regulations of the host country

9. SPECIAL CONSIDERATIONS
Financial risk
Currency risk
The risk posed by variations in exchange rates between countries
Country risk
The entire range of political, legal, social, and economic conditions that may put international business at risk

10. Money laundering
Intentionally depositing, investing, or exchanging money in such a way as to conceal its illegal source

11. checkpoint
What is an edge corporation? Name three types of risk for international banking.

12. INTERNATIONAL SERVICES
Trade financing
Letter of credit
An instrument given by a bank on behalf of a buyer (applicant) to pay the bank of the seller (beneficiary) a given sum in a given time
Drafts and wires
International collections
Foreign exchange rate
The value of one currency in terms of another

13. TRADE CONSULTING
U.S. export-import (Ex-Im) bank
Overseas private investment corporation (OPIC)

14. checkpoint
What is a letter of credit?

15. 9.2 INSURANCE AND BROKERAGE
Banking
6/7/2018
9.2 INSURANCE AND BROKERAGE
GOALS
Explain the effects of the Gramm-Leach-Bliley Act of 1999.
List typical insurance and brokerage products available from financial institutions.
Chapter 1

16. TERMS
Stock
Bond
Mutual fund
Annuity

17. A NEW ERA
The old world: Glass-Steagall Act
The new world: Gramm-Leach-Bliley Act (GLBA)
Limits and regulation

18. checkpoint
Why did the Glass-Steagall Act limit the participation of banks in a wide range of financial businesses? What was the major result of the Gramm-Leach-Bliley Act?

19. The workings of insurance
INSURANCE PRODUCTS
The workings of insurance
The primary goal of insurance is to
Allocate the risks of loss from the individual to a great number of people
Protect holders against financial disaster

20. PERSONAL INSURANCE PRODUCTS
Auto insurance
Credit insurance
Disability insurance
Life insurance

22. Homeowner’s insurance Mortgage disability insurance Title insurance
Health insurance
Traditional
HMO
PPO
Homeowner’s insurance
Mortgage disability insurance
Title insurance

23. BUSINESS INSURANCE
Commercial liability
Disability―short-term
Disability―long-term
Health insurance
Officers’ liability insurance
Property insurance
Workers’ compensation insurance

24. checkpoint
What is an HMO?

25. A broker charges a fee to execute the transaction.
BROKERAGE SERVICES
Brokerage
Bringing together parties interested in making a transaction
A broker charges a fee to execute the transaction.

26. STOCKS Stock Common stock Preferred stock
The capital raised by a corporation through the issuance of shares entitling holders to an ownership interest, or equity, in the corporation
Common stock
Preferred stock

27. BONDS
Bond
A debt instrument issued for a period of more than one year with the purpose of raising capital through borrowing

28. MUTUAL FUNDS Mutual funds Diversification
Investment companies that pool money from many savers who have small amounts to invest
Diversification
The distribution of assets in a portfolio among different types of securities and maturity dates instead of putting “all your eggs in one basket”

29. ANNUITIES
Annuity
A series of payments, often to a retired person, of a set amount from a capital investment
Paid at a specified frequency and for a set number of years or until the annuitant’s death

30. checkpoint
What is a diversified portfolio?

31. Banking
6/7/2018
9.3 CASH MANAGEMENT
GOALS
Explain why banks are in a good position to offer cash management services.
List several cash management services banks perform for businesses.
Chapter 1

32. TERMS
Outsourcing
Factoring

33. SYSTEMS IN PLACE FOR CASH MANAGEMENT
Banks are in a good position to provide cash management services to businesses for several reasons.
Experience
Business knowledge
Technology
Industry expertise

34. checkpoint
Why is a bank in a good position to offer cash management services?

35. Frequently outsourced accounting services include
CASH MANAGEMENT
Outsourcing
Having an outside party supply a product or service that the firm had been producing or performing itself
Frequently outsourced accounting services include
Payroll
Accounts payable
Accounts receivable

36. Bank collection services enable banks to collect funds and integrate information easily and cost effectively.
Deposit services
Lockbox service
Zero-balance accounts (ZBAs)
Automated Clearing House (ACH) Network

37. Electronic Data Interchange (EDI)
INFORMATION SERVICES
Electronic Data Interchange (EDI)
The computer-to-computer exchange of business information through standard interfaces

38. CAPITAL SERVICES Capital investments Financing Factoring
The practice of buying debt at a discount

39. checkpoint
Explain how a zero-balance account works.

40. GOALS Explain what trust services are.
Banking
9.4 TRUSTS
6/7/2018
GOALS
Explain what trust services are.
Identify important types of trust services banks provide.
Chapter 1

41. TERMS
Trust
Donor
Beneficiary
Corpus
IRA
401(k) plan

42. TERMS
Variable annuity
Estate
Will
Probate
Executor
Living trust

43. WHAT ARE TRUST SERVICES?
An arrangement by which one party holds property on behalf of another party for certain defined purposes
Donor
The person who creates a trust
Beneficiary
The person for whose benefit the property is held
Corpus
Refers to the property that is held

44. checkpoint
What is a trust?

45. TRUST SERVICE PRODUCTS
Retirement planning
IRA (individual retirement account)
Traditional
Funds are invested on a before-tax basis
Taxed upon withdrawal
Roth
Funds use after-tax dollars
As long as the assets have remained inside the account for five years, all earnings and principal can be withdrawn totally tax-free after age 59½.

46. 401 (k) plan Variable annuity
Allows employees to make tax-deferred contributions to a trust and direct their funds to be invested among a variety of choices
Money can be retrieved at departure or retirement
Variable annuity
Combines the opportunity for tax-deferral with a choice of portfolios and the flexibility to vary annual contributions according to the investors’ needs or market conditions

47. ESTATE PLANNING Estate Will
The total property, real (real estate) and personal (all other possessions, such as automobiles, jewelry, and bank accounts) that an individual owns
Will
A document by which the individual gives instructions as to what is to happen upon his or her death in regard to property and remains

48. Probate
A court proceeding that settles an estate’s final debts and formally passes legal title to property from the decedent to his or her heirs

49. Identifying and valuing the estate assets
ESTATE SETTLEMENT
Identifying and valuing the estate assets
Executor
The person named in the will to administer the estate
Paying creditors, estate expenses, and taxes
Preparing and filing the necessary tax documents with Federal and/or state authorities
Distributing assets to beneficiaries

50. TESTAMENTARY TRUSTS Testamentary trusts
Established by a will and take effect at the donor’s death
Receive the assets of the estate to hold and manage for the benefit of the heirs

51. CHARITABLE REMAINDER TRUSTS
Charitable remainder trust (CRT)
An irrevocable trust designed to convert the highly appreciated assets of a trust into a lifetime income stream without generating estate and capital gains taxes
Trustor
The person who sets up the trust

52. LIVING TRUSTS Living trust
A legal document that provides an expedient way to transfer property at a person’s death

53. checkpoint
What are the responsibilities of an estate executor?