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Mutual banks / building societies
Mutual banks / building societies are distinguished from the "norm" banks in that the holders of particular long-term deposits, which are called shares, are their ultimate owners. As opposed to ordinary shares that may be listed, mutual banks/ building societies issue the following types of "shares", all of which are interest bearing:
• Indefinite period shares.
• Fixed period shares (usually longer than 5 years).
• Permanent interest-bearing shares.
As mutual banks generally are transmutes of building societies, they, like building societies, tend do little business other than mortgage loans. Apart from mortgage business, and the issuing (selling) of the "shares" referred to above, the mutual banks / building societies also offer savings, medium-term and long-term deposit facilities.
Merchant and investment banks
Merchant banking is the old name for the investment banking genre. The old name is still in use, but only because of entrenched branding. Investment banking is essentially the provision of certain banking and other services (especially services that involve the wholesale financial markets) aimed at the corporate and government sectors. The following services usually are associated with investment banking in the US:
• Advising (on financing needs, funding mechanism, team of institutions, etc.).
• Administration (in connection with issuing securities such as legal documents).
• Underwriting (agreement to take up un-issued securities at a specified price).
• Distribution (placement of securities with investors).
In other countries investment banking is associated with the abovementioned, plus other services that include:
• Securities broking and dealing.
• Commodities broking and dealing.
• Foreign exchange broking and dealing.
• Derivatives broking and dealing.
• Portfolio management.
Some of these functions are conducted through subsidiaries or are fellow subsidiaries of the bank under the umbrella of a bank holding company. As noted, the main clients of investment banks are the corporate sector and the government sector.
Investments banks are usually subject to the same requirements as the "norm" banks, but in some countries the capital requirement entry level is lower.
There are certain banks that prefer to operate in only a limited part of the business of investment banking, i.e. trading in the financial markets. They tend to operate solely in the following areas:
• Securities broking and trading.
• Commodities broking and trading.
• Derivatives broking and trading.
Private banking is a term used for the banks that focus on providing services to high net worth individuals (which private banks refer to as private clients). Examples in the UK are Hoare & Co (the only surviving private banker still owned by the same family), Coutts Bank and Martins Bank (which started business in the 17th century as goldsmith-bankers). Each client of a private bank is assigned a private banker.
The following services are usually associated with private banking:
• A cheque account with generous overdraft facilities.
• Other generous loan facilities such as a mortgage advance at a prime rate.
• Foreign exchange services.
• Onshore portfolio management services.
• Offshore portfolio management services.
• Stock broking.
Most of the business done with a private bank is by telephone conversation (which is recorded to protect both parties), and by electronic banking. Cheque books and forex are generally hand-delivered to the client.
Private banks are normal banks in respect of prudential requirements.
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