Introduction to Banking

Canadian Banking

Banks are businesses that sell services and make a profit

Money is made by charging and collecting interest on loans, e.g. mortgages

Banks also invest some of the money that customers deposit with them

The Bank Act

Passed in 1871 Outlines the rules and regulations

that banks must follows All Canadian banks receive a charter from the federal government Government gives the banks authority

to operate Known as “charter” banks

Classes of Banks

Canadian banks fall into one of three classes: Schedule I Schedule II Schedule III

The class that the bank belongs to is determined by its ownership

Schedule I Banks

Are owned by Canadian shareholders Shares are traded on major stock

exchanges There are 19 Schedule I banks Accept deposits from customers and

offer investment and financial services e.g. Scotiabank, CIBC

Schedule II Banks

Most foreign-owned controlled by a small number of shareholders

Shares are not usually available to the general public

Have the same powers as a Schedule I banks, but the government may set limits on the number of branches and total amount of assets e.g. ING, HSBC

Schedule III Banks

Foreign bank branches with permission to operate in Canada

Bank Act sets restrictions Most concentrate on investment

banking and corporate customerse.g. Citibank, Deutsche Bank AG

Trust Companies

First established in the late 1800s Provide many banking services

including: Savings and chequing accounts, loans

Also called near banks Also assist with the sale of real

estate, administering estates of deceased persons, maintaining trust accounts for charitable organizations and minors

Trust Companies continued…

Not regulated by the Bank Act Each province and federal

government specify the types of investments that these institutions can make with customers’ money

Caisses Populaires and Credit Unions

Organized and owned by groups of people who pool and share their resources

Form of co-operative business ownership

Members share a common bond of association e.g. teachers

Belong to the World Council of Credit Unions

Caisses Populaires and Credit Unions continued…

Offer a variety of services such as taking deposits, chequing services, investment products, loans

In order to borrow money, you must have savings deposited there

Caisses Populaires and Credit Unions continued…

Unique features: Provide services only to members and

their families To become a member, must purchase

at least one share Members are equal owners regardless

of number of shares owned

Insurance Companies

Financial institutions that insure risk Focus on either life and health insurance,

or property and car insurance Individuals and businesses rely on

insurance e.g. fire insurance, car insurance in case

of an accident Companies include:

Manulife, Sunlife, Economical

How Insurance Works

It’s complicated! Works by using the payments

received from policyholders to pay the claims of those who make them

Risk is shared Many policyholders = millions in

premiums If not needed right away, money

can also be put into reserves