Banks and their functions Chapter 2.docx

8/18/2019 Banks and their functions Chapter 2.docx

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Financial intermediary

Financial intermediation consists of “channeling funds between surplus and deficit agents”. Afinancial intermediary is a financial institution that connects surplus and deficit agents. The

classic example of a financial intermediary is a bank that transforms bank deposits into bank loans.

Through the process of financial intermediation, certain assets or liabilities are transformed intodifferent assets or liabilities. As such, financial intermediaries channel funds from people whohave extra money (savers to those who do not have enough money to carry out a desired activity( borrowers.

!n the ".#., a financial intermediary is typically an institution that facilitates the channeling of funds between lenders and borrowers indirectly. That is, savers (lenders give funds to anintermediary institution (such as a bank , and that institution gives those funds to spenders

(borrowers. This may be in the form of loans or mortgages. Alternatively, they may lend themoney directly via the financial markets, which is known as financial disintermediation.

Functions performed by financial intermediaries

$inancial intermediaries provide % ma&or functions'

. )aturity transformation' *onverting short+term liabilities to long term assets (banks dealwith large number of lenders and borrowers, and reconcile their conflicting needs

. -isk transformation' *onverting risky investments into relatively risk+free ones. (lending

to multiple borrowers to spread the risk

%. *onvenience denomination' )atching small deposits with large loans and large depositswith small loans

Advantages of financial intermediaries

There are essential advantages from using financial intermediaries'

. *ost advantage over direct lendingborrowing

. )arket failure protection the conflicting needs of lenders and borrowers are reconciled, preventing market failure

The cost advantages of using financial intermediaries include'

. -econciling conflicting preferences of lenders and borrowers

. -isk aversion intermediaries help spread out and decrease the risks

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%. /conomies of scale using financial intermediaries reduces the costs of lending and borrowing

0. /conomies of scope intermediaries concentrate on the demands of the lenders and borrowers and are able to enhance their products and services (use same inputs to

produce different outputs

What Are The Functions of A Financial Manager?

• Financial Management

The main function of a $inance )anager ($) is to provide materially accurate information to

the general public, shareholders, stakeholders and the management of an enterprise, be this a

&oint stock (limited liability *ompany, social enterprisecharity or community association, such

as a sports club or a parentteacher organisation. This information will be of two types The first

will be management accounts that provides information from which decisions can be made,

showing the success + or otherwise + of the organisation in achieving it1s goals and targets. The

second is financial accounts that is more formal and fulfils legal and moral obligations of

organisations. This will include profit and loss accounts at the end of a trading period, together

with a balance sheet showing the assets and liabilities of the organisation. The $), working

with auditors and accountants, will complete and file tax returns and other information that is

re2uired by the Authorities that oversee the operation of the organisation. This type of

information is usually produced annually, but for very large organisations, such as *orporations

with operations all over the world, and whose shares are 2uoted on #tock /xchanges, data is

often produced at the end of each 2uarter+year to ensure information is shared, and from which

investors can make reasoned &udgements. The format of the various reports can be 2uite simple +

useful in small organisations, such as social clubs, but get more complex the larger the

organisation. A second key function of an $) is to maintain control over the organisation. This

is achieved in a number of ways. Target setting is the usual process, with ob&ectives, defined as a

budget set for each part of the organisation, showing how much revenue is re2uired to supportthe cost structure, so that a trading profit is made at the end of the period. The $) has to work

with all the other )anagers in the organisation to make sure the ob&ectives are reasonable, are

understood and the whole team agrees with them. This process is very complicated and difficult,

but once achieved helps the whole organisation. 3nce a budget is agreed, the $) can monitor

progress by measuring what is actually happening against the plan, showing other )anagers if

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they are on track, or some action needs to be taken to increase sales to generate more revenue, or

stop spending to cut costs. The $) maintains control by determining processes and ways of

doing things. $or example, to spend money on something, it is unusual to have a process that

establishes whether good value is being achieved by re2uiring the purchaser to look at different

ways of buying what they want, getting different 2uotes from different suppliers. 4rocesses like

these help maintain control by having an audit trail that supports the purchase decision. 3ther

functions will include those needed to be a manager, responsible for the people in the finance

team, so good interpersonal skills are re2uired, together with the ability to prioritise and organise.

$inance )anagers do lots of thinks and look all the financial parts of the company. They are

responsible for allocating financial resources of the company. They also activity take part is

budgeting, risk management and financial reporting. 3ther important finance manager tasks are

have an eye on profits and loss, make financial reports, making certain plans to lessen the

financial risk and so on.

Financial Management

#ome of the main functions of a $inance )anager includes setting up financial goals, planning

strategies to reach these goals, keeping a high check on profits and loss, preparing financial

reports, investing funds, monitoring cash flows, advising the rest of on mergers and ac2uisitions,

accounting and auditing, developing certain kind of procedures in order to minimi5e financial

risk and establishing lending criteria. !n short, financial managers handle all the financial

dealings and accounts of the company.

The whole lingo is to add value to the company by setting the right financial goals. They handle

all the financial accounts with rigorous auditing. They decide on how much of the company1s

profits should be returned into investment and also how much should be reinvested into the

organisation. $inancial managers are pillars to your new organisation or a step to the growth of

your organisation.

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The main task of a financial manager is to supply investment advice along with financial

planning services. 6asically the financial manager helps the consumer to maximi5e their net

worth via appropriate asset allocation.

$inancial managers usually use stocks, bonds, mutual funds and insurance products to fulfil the

re2uirements of a client. 7uite a few financial managers accept a commission imbursement for

the different types of financial products which they negotiate for, even though 8fee+based8

development is gaining popularity in the market.

3ne of the vital services which financial managers supply is the retirement planning. The

financial managers have high scale knowledge in the field of budgeting, forecasting, taxation,

asset allocation, etc. $inancial managers may even help their client in investing for both long

term as well as short term basis. )uddassar )emon

The five basic corporate finance functions are described as those functions related to9

raising capital to support company operations and investments (aka, financing functions9

selecting those pro&ects based on risk and expected return that are the best use of a company1s

resources (aka, capital budgeting functions9

% management of company cash flow and balancing the ratio of debt and e2uity financing to

maximi5e company value (aka, financial management function9

0 developing a company governance structure to encourage ethical behavior and actions that

serve the best interests of its stockholders (aka, corporate governance function9 and

: management of risk exposure to maintain optimum risk+return trade+off that maximi5es

shareholder value (aka, risk management function. Anonymous

The role of financial managers are as follows'

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+ ;evelopment and !mplementation of financial policies and systems

+ /stablishment of performance standards

+ 4reparation of various financial reports for senior managers


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• *ollective investment schemes

• 4ension funds

Banks

Definition:

The definition of a bank varies from country to country.

"nder /nglish common law, a banker is defined as a person who carries on the business of

banking, which is specified as'

• conducting current accounts for his customers,

• paying che2ues drawn on himher, and

• collecting che2ues for hisher customers.

!n most common law &urisdictions there is a 6ills of /xchange Act that codifies the law in

relation to negotiable instruments, including che2ues, and this Act contains a statutory definition

of the term banker ' banker includes a body of persons, whether incorporated or not, who carry

on the business of banking1 (#ection , !nterpretation. Although this definition seems circular, it

is actually functional, because it ensures that the legal basis for bank transactions such as

che2ues does not depend on how the bank is structured or regulated.

The business of banking is in many /nglish common law countries not defined by statute but by

common law, the definition above. !n other /nglish common law &urisdictions there are statutory

definitions of the business of banking or banking business. hen looking at these definitions it is

important to keep in mind that they are defining the business of banking for the purposes of the

legislation, and not necessarily in general. !n particular, most of the definitions are from

legislation that has the purposes of entry regulating and supervising banks rather than regulating

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the actual business of banking.


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6anking in its modern sense evolved in the 0th century in the rich cities of -enaissance !taly

but in many ways was a continuation of ideas and concepts of credit and lending that had its

roots in the ancient world. !n the history of banking, a number of banking dynasties have played

a central role over many centuries. The oldest existing bank was founded in 0>.

6anks act as payment agents by conducting checking or current accounts for customers, paying

che2ues drawn by customers on the bank, and collecting che2ues deposited to customers1 current

accounts. 6anks also enable customer payments via other payment methods such as Automated

*learing :F billion to

G>FF billion between @@> and FF>, much of the increase caused by bank lending. !f all the

banks increase their lending together, then they can expect new deposits to return to them and the

amount of money in the economy will increase. /xcessive or risky lending can cause borrowers

to default, the banks then become more cautious, so there is less lending and therefore less

money so that the economy can go from boom to bust as happened in the "E and many other

estern economies after FF>.

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hannels

6anks offer many different channels to access their banking and other services'

•Automated Teller )achines

• A branch is a retail location

• *all center

• )ail' most banks accept che2ue deposits via mail and use mail to communicate to their

customers, e.g. by sending out statements

• )obile banking is a method of using one1s mobile phone to conduct banking transactions

• 3nline banking is a term used for performing multiple transactions, payments etc. over

the !nternet

• -elationship )anagers, mostly for private banking or business banking, often visiting

customers at their homes or businesses

• Telephone banking is a service which allows its customers to conduct transactions over

the telephone with automated attendant or when re2uested with telephone operator

• Hideo banking is a term used for performing banking transactions or professional banking

consultations via a remote video and audio connection. Hideo banking can be performed

via purpose built banking transaction machines (similar to an Automated teller machine,

or via a video conference enabled bank branch clarification

• ;#A is a ;irect #elling Agent, who works for the bank based on a contract. !ts main &ob

is to increase the customer base for the bank.

Business model

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A bank can generate revenue in a variety of different ways including interest, transaction fees

and financial advice. The main method is via charging interest on the capital it lends out to

customers. The bank profits from the difference between the level of interest it pays for deposits

and other sources of funds, and the level of interest it charges in its lending activities.

This difference is referred to as the spread between the cost of funds and the loan interest rate.


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card products through interest payments and fees charged to consumers and transaction fees to

companies that accept its credit andor debit cards. This helps in making profit and facilitates

economic development as a whole.

• !roducts

"etail banking

• *hecking account

• #avings account

•)oney market account

• *ertificate of deposit (*;

• !ndividual retirement account (!-A

• *redit card

•

;ebit card

• )ortgage

•


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• *urrent Accounts

• *he2ue books

Business #or commercial$investment% banking

• 6usiness loan

• *apital raising (/2uity ;ebt


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• Ji2uidity risk ' risk that a given security or asset cannot be traded 2uickly enough in the

market to prevent a loss (or make the re2uired profit.

• )arket risk ' risk that the value of a portfolio, either an investment portfolio or a trading

portfolio, will decrease due to the change in value of the market risk factors.

• 3perational risk ' risk arising from execution of a company1s business functions.

• -eputational risk ' a type of risk related to the trustworthiness of business.

• )acroeconomic risk ' risks related to the aggregate economy the bank is operating in.

The capital re2uirement is a bank regulation, which sets a framework on how banks and

depository institutions must handle their capital. The categori5ation of assets and capital is highly

standardi5ed so that it can be risk weighted.

Functions of Banks in the &conomy

6anks perform various functions in the economy. These economic functions of banks include'

. 'ssue of money, in the form of banknotes and current accounts sub&ect to check or payment at the customer1s order. These claims on banks can act as money because they

are negotiable or repayable on demand, and hence valued at par. They are effectively

transferable by mere delivery, in the case of banknotes, or by drawing a check that the

payee may bank or cash.

. (etting and settlement of payments L banks act as both collection and paying agents

for customers, participating in interbank clearing and settlement systems to collect,

present, be presented with, and pay payment instruments. This enables banks to

economi5e on reserves held for settlement of payments, since inward and outward

payments offset each other. !t also enables the offsetting of payment flows between

geographical areas, reducing the cost of settlement between them.

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%. redit intermediation L banks borrow and lend back+to+back on their own account as

middle men.

0. redit )uality improvement L banks lend money to ordinary commercial and personal

borrowers (ordinary credit 2uality, but are high 2uality borrowers. The improvement

comes from diversification of the bank1s assets and capital which provides a buffer to

absorb losses without defaulting on its obligations.


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6anking crises have developed many times throughout history, when one or more risks have

emerged for a banking sector as a whole. 4rominent examples include the bank run that occurred

during the Ireat ;epression, the ".#. #avings and Joan crisis in the @?Fs and early @@Fs, the

Mapanese banking crisis during the @@Fs, and the sub+prime mortgage crisis in the FFFs.

*i+e of global banking industry

Assets of the largest ,FFF banks in the world grew by =.?N in the FF?FF@ financial year to a

record "#O@=.0 trillion while profits declined by ?:N to "#O: billion. Irowth in assets in

adverse market conditions was largely a result of recapitali5ation. /" banks held the largest

share of the total, :=N in FF?FF@, down from =N in the previous year. Asian banks1 share

increased from N to 0N during the year, while the share of "# banks increased from N to

%N. $ee revenue generated by global investment banking totaled "#O==.% billion in FF@, up

N on the previous year.

The "nited #tates has the most banks in the world in terms of institutions (>,F?: at the end of

FF? and possibly branches (?,FFF. This is an indicator of the geography and regulatory

structure of the "#A, resulting in a large number of small to medium+si5ed institutions in its

banking system. As of Dov FF@, *hina1s top 0 banks have in excess of =>,FFF branches

(!*6*'?FFFP, 63*'FFFP, **6'%FFFP, A6*'0FFFP with an additional 0F smaller bankswith an undetermined number of branches. Mapan had @ banks and ,FFF branches. !n FF0,

Iermany, $rance, and !taly each had more than %F,FFF branchesQmore than double the :,FFF

branches in the "E.

Banking "egulation

*urrently commercial banks are regulated in most &urisdictions by government entities and

re2uire a special bank license to operate.

"sually the definition of the business of banking for the purposes of regulation is extended to

include acceptance of deposits, even if they are not repayable to the customer1s orderQalthough

money lending, by itself, is generally not included in the definition.

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"nlike most other regulated industries, the regulator is typically also a participant in the market,

being either a publicly or privately governed central bank . *entral banks also typically have a

monopoly on the business of issuing banknotes. . The bank must not disclose details of transactions through the customer1s accountQ

unless the customer consents, there is a public duty to disclose, the bank1s interests

re2uire it, or the law demands it.

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?. The bank must not close a customer1s account without reasonable notice, since checks are

outstanding in the ordinary course of business for several days.

These implied contractual terms may be modified by express agreement between the customer

and the bank. The statutes and regulations in force within a particular &urisdiction may also

modify the above terms andor create new rights, obligations or limitations relevant to the bank+

customer relationship.

#ome types of financial institution, such as building societies and credit unions, may be partly or

wholly exempt from bank license re2uirements, and therefore regulated under separate rules.

The re2uirements for the issue of a bank license vary between &urisdictions but typically include'

. )inimum capital

. )inimum capital ratio

%. 1$it and 4roper1 re2uirements for the bank1s controllers, owners, directors, or senior

officers

0. Approval of the bank1s business plan as being sufficiently prudent and plausible.

Types of Banks

6anks1 activities can be divided into retail banking, dealing directly with individuals and small

businesses9 business banking, providing services to mid+market business9 corporate banking,

directed at large business entities9 private banking, providing wealth management services to

high net worth individuals and families9 and investment banking, relating to activities on the

financial markets. )ost banks are profit+making, private enterprises.


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• *ommercial bank ' the term used for a normal bank to distinguish it from an investment

bank. After the Ireat ;epression, the ".#. *ongress re2uired that banks only engage in

banking activities, whereas investment banks were limited to capital market activities.

#ince the two no longer have to be under separate ownership, some use the term

8commercial bank8 to refer to a bank or a division of a bank that mostly deals with

deposits and loans from corporations or large businesses.

• *ommunity banks' locally operated financial institutions that empower employees to

make local decisions to serve their customers and the partners.

• *ommunity development banks' regulated banks that provide financial services and

credit to under+served markets or populations.

• *redit unions' not+for+profit cooperatives owned by the depositors and often offering

rates more favorable than for+profit banks. Typically, membership is restricted to

employees of a particular company, residents of a defined area, members of a certain

union or religious organi5ations, and their immediate families.

• 4ostal savings banks' savings banks associated with national postal systems.

• 4rivate banks' banks that manage the assets of high net worth individuals.


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focus on retail banking' payments, savings products, credits and insurances for

individuals or small and medium+si5ed enterprises. Apart from this retail focus, they also

differ from commercial banks by their broadly decentrali5ed distribution network,

providing local and regional outreachQand by their socially responsible approach to

business and society.

• 6uilding societies and Jandesbanks' institutions that conduct retail banking.

• /thical banks' banks that prioriti5e the transparency of all operations and make only what

they consider to be socially+responsible investments.

• A ;irect or !nternet+3nly bank is a banking operation without any physical bank

branches, conceived and implemented wholly with networked computers.

Types of investment banks

•

!nvestment banks 8underwrite8 (guarantee the sale of stock and bond issues, trade for their own accounts, make markets, provide investment management, and advise

corporations on capital market activities such as mergers and ac2uisitions.

• )erchant banks were traditionally banks which engaged in trade finance. The modern

definition, however, refers to banks which provide capital to firms in the form of shares

rather than loans. "nlike venture capital firms, they tend not to invest in new companies.

Both combined,

• "niversal banks, more commonly known as financial services companies, engage in

several of these activities. These big banks are very diversified groups that, among other

services, also distribute insuranceQ hence the term bancassurance, a portmanteau word

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combining 8ban2ue or bank8 and 8assurance8, signifying that both banking and insurance

are provided by the same corporate entity.

-ther types of banks

• *entral banks are normally government+owned and charged with 2uasi+regulatory

responsibilities, such as supervising commercial banks, or controlling the cash interest

rate. They generally provide li2uidity to the banking system and act as the lender of last

resort in event of a crisis.

• !slamic banks adhere to the concepts of !slamic law. This form of banking revolves

around several well+established principles based on !slamic canons. All banking activities

must avoid interest, a concept that is forbidden in !slam. !nstead, the bank earns profit

(markup and fees on the financing facilities that it extends to customers.

Banking in the .nited *tates

The "nited #tates banking industry is one of the most heavily regulated in the world, with

multiple speciali5ed and focused regulators. All banks with $;!*+insured deposits have the

$ederal ;eposit !nsurance *orporation ($;!* as a regulator. @ as a

formal inter+agency body empowered to prescribe uniform principles, standards, and report

forms for the federal examination of financial institutions. Although the $$!/* has resulted in a

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greater degree of regulatory consistency between the agencies, the rules and regulations are

constantly changing.

!n addition to changing regulations, changes in the industry have led to consolidations within the

$ederal -eserve, $;!*, 3T#, )A!* and 3**. 3ffices have been closed, supervisory regions

have been merged, staff levels have been reduced and budgets have been cut. The remaining

regulators face an increased burden with increased workload and more banks per regulator.

hile banks struggle to keep up with the changes in the regulatory environment, regulators

struggle to manage their workload and effectively regulate their banks. The impact of these

changes is that banks are receiving less hands+on assessment by the regulators, less time spent

with each institution, and the potential for more problems slipping through the cracks, potentially

resulting in an overall increase in bank failures across the "nited #tates.

The changing economic environment has a significant impact on banks and thrifts as they

struggle to effectively manage their interest rate spread in the face of low rates on loans, rate

competition for deposits and the general market changes, industry trends and economic

fluctuations. !t has been a challenge for banks to effectively set their growth strategies with the

recent economic market. A rising interest rate environment may seem to help financial

institutions, but the effect of the changes on consumers and businesses is not predictable and the

challenge remains for banks to grow and effectively manage the spread to generate a return to

their shareholders.

The management of the banksS asset portfolios also remains a challenge in todaySs economic

environment. Joans are a bankSs primary asset category and when loan 2uality becomes suspect,

the foundation of a bank is shaken to the core. hile always an issue for banks, declining asset

2uality has become a big problem for financial institutions. There are several reasons for this,

one of which is the lax attitude some banks have adopted because of the years of “good times.”

The potential for this is exacerbated by the reduction in the regulatory oversight of banks and in

some cases depth of management. 4roblems are more likely to go undetected, resulting in a

significant impact on the bank when they are discovered. !n addition, banks, like any business,

struggle to cut costs and have conse2uently eliminated certain expenses, such as ade2uate

employee training programs.

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6anks also face a host of other challenges such as aging ownership groups. Across the country,

many banksS management teams and board of directors are aging. 6anks also face ongoing

pressure by shareholders, both public and private, to achieve earnings and growth pro&ections.

-egulators place added pressure on banks to manage the various categories of risk. 6anking is

also an extremely competitive industry. *ompeting in the financial services industry has become

tougher with the entrance of such players as insurance agencies, credit unions, check cashing

services, credit card companies, etc.

As a reaction, banks have developed their activities in financial instruments, through financial

market operations such as brokerage and )A!* trust R #ecurities *learing services trading and

become big players in such activities.

ompetition for /oanable Funds

To be able to provide borrowers with the funds needed, banks must compete for deposits. The

phenomenon of disintermediation had to dollars moving from savings accounts and into direct

market instruments such as ".#. ;epartment of Treasury obligations, agency securities, and

corporate debt. 3ne of the greatest factors in recent years in the movement of deposits was the

tremendous growth of money market funds whose higher interest rates attracted consumer

deposits.

To compete for deposits, "# savings institutions offer many different types of plans'

• 4assbook or ordinary deposit accounts Q permit any amount to be added to or withdrawn

from the account at any time.

• D3 and #uper D3 accounts Q function like checking accounts but earn interest. A

minimum balance may be re2uired on #uper D3 accounts.

• )oney market accounts Q carry a monthly limit of preauthori5ed transfers to other

accounts or persons and may re2uire a minimum or average balance.

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• *ertificate accounts Q sub&ect to loss of some or all interest on withdrawals before

maturity.

• Dotice accounts Q the e2uivalent of certificate accounts with an indefinite term. #avers

agree to notify the institution a specified time before withdrawal.

• !ndividual retirement accounts (!-As and Eeogh plans Q a form of retirement savings

in which the funds deposited and interest earned are exempt from income tax until after

withdrawal.

• *hecking accounts Q offered by some institutions under definite restrictions.

• All withdrawals and deposits are completely the sole decision and responsibility of the

account owner unless the parent or guardian is re2uired to do otherwise for legal reasons.

• *lub accounts and other savings accounts Q designed to help people save regularly to

meet certain goals.

Compare this to what obtains in Sierra Leone.

Accounting for Bank Accounts

6ank statements are accounting records produced by banks under the various accounting

standards of the world. "nder IAA4 and )A!* there are two kinds of accounts' debit and

credit. *redit accounts are -evenue, /2uity and Jiabilities. ;ebit Accounts are Assets and

/xpenses. This means you credit a credit account to increase its balance, and you debit a credit

account to decrease its balance.

This also means you credit your savings account every time you deposit money into it (and the

account is normally in credit, while you debit your credit card account every time you spend

money from it (and the account is normally in debit.


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it will say the oppositeQthat you credit your account when you deposit money and you debit it

when you withdraw funds. !f you have cash in your account, you have a positive (or credit

balance9 if you are overdrawn, you have a negative (or deficit balance.

here bank transactions, balances, credits and debits are discussed below, they are done so from

the viewpoint of the account holderQwhich is traditionally what most people are used to seeing.

Brokered deposits

3ne source of deposits for banks is brokers who deposit large sums of money on the behalf of

investors through )A!* or other trust corporations. This money will generally go to the bankswhich offer the most favorable terms, often better than those offered local depositors. !t is

possible for a bank to engage in business with no local deposits at all, all funds being brokered

deposits. Accepting a significant 2uantity of such deposits, or 8 hot money8 as it is sometimes

called, puts a bank in a difficult and sometimes risky position, as the funds must be lent or

invested in a way that yields a return sufficient to pay the high interest being paid on the

brokered deposits. This may result in risky decisions and even in eventual failure of the bank.

6anks which failed during FF? and FF@ in the "nited #tates during the global financial crisis

had, on average, four times more brokered deposits as a percent of their deposits than the average

bank. #uch deposits, combined with risky real estate investments, factored into the savings and

loan crisis of the @?Fs. )A!* -egulation of brokered deposits is opposed by banks on the

grounds that the practice can be a source of external funding to growing communities with

insufficient local deposits.

0lobali+ation in the Banking 'ndustry

!n modern time there have been huge reductions to the barriers of global competition in the

banking industry. !ncreases in telecommunications and other financial technologies, such as

6loomberg, have allowed banks to extend their reach all over the world, since they no longer

have to be near customers to manage both their finances and their risk. The growth in cross+

border activities has also increased the demand for banks that can provide various services across

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borders to different nationalities.


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of $inance asserted, “Do independent country can regard itself as truly independent until it has

its own national currency. The time is not too distant when #ierra Jeone too will have its own

central bank”.

4reliminary arrangements for the establishment of a central bank including the drafting of the

legislation then commenced. 3n >th )arch, @=%, the 6ank of #ierra Jeone Act became law

and the 6ank began operation on 0th August, @=0, the day #ierra Jeone changed to the decimal

system of currency.

What does the Bank do?

The ob&ectives of 6ank of #ierra Jeone as spelt out in the 6ank of #ierra Jeone Act FFF are'

• The promotion of monetary stability and a sound nancial structure

• The maintenance of the internal and e!ternal "alues of the #eone

• The promotion of credit and e!chan$e conditions conduci"e to the balanced$ro%th of the economy

• The issuin$ and distribution of notes and currency in the country

• The formulation and implementation of monetary policy

• &an'er and ad"iser to the (o"ernment in nancial and economic matters

• The mana$in$ of domestic as %ell as forei$n debt

• )ctin$ as custodian of the country*s reser"e of appro"ed forei$n e!chan$e

• )ctin$ as ban'er to the +ommercial &an's

• The super"ision and re$ulation of the acti"ities of commercial ban's andother ,inancial -nstitutions to ensure the health of the nancial system

•

The administration of the operations of .tructural )d/ustment ro$rams%here the ban' has specic responsibilities

(on Traditional "ole

• -ural 6anking9 and

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• ;iamond *ertification

-1nership

The 6ank of #ierra Jeone is a body corporate and is FFN state+owned.

Administration$Who "uns the Bank

The 6ankSs affairs (i.e. policies and general administration are administered by the 6oard of

;irectors which comprise the Iovernor, the ;eputy Iovernor and formerly % now : Don+

executive ;irectors, all of whom are appointed by the


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10.'ye &an'

11nited &an' for )frica

12;enith &an'

+ommunity ban's

1


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Step 0o. 1escription cti%it'

&Submit a letter of application for a license to either BSL or SLI*#M, including all rele%ant documents

(BSL or SLI*#M carries out appraisal of the application, and issues a response notif'ing applicant of decision

If appro%al is granted to issue license, the notification 2ill include instructions on the applicable license fees

and description of the license area. The license becomes effecti%e on making pa'ments of applicable fees a meeting other conditions listed in the notification.

Industry Minimum Capital License Fees

(Le) (US$) (Mn Le) (Mn US$)

Banking effecti%e &/3&/(3& (4 Bn 5. Mn 67 Mn &k

#ther $inancial Ser%ices (33 Mn -6k 5 Mn &.-k

Insurance

Insurance !elated Ser%ices

Book "evie1

The -evised Prudential Guidelines of Sierra Leone for Commercial Banks 2012

Or

he Guidelines Go!erin" Bank of Sierra Leone #orei"n $%chan"e &uction 2012

Or

he Bankin" &ct 2011.

Or

he Bank of Sierra Leone &ct 2011

Documents

Banks and their functions Chapter 2.docx