Financial institutions, sometimes called 

banking institutions, are business entities that provide

services as intermediaries for different types of financial monetary transactions. Broadly
speaking, there are three major types of financial institutions:

1. Depository institutions – deposit-taking institutions that accept and manage deposits and
make loans, including banks, building societies, credit unions, trust companies,
and mortgage loan companies.
2. Contractual institutions – insurance companies and pension funds
3. Investment institutions – investment banks, underwriters, and other different types of
financial entities managing investments.

A financial institution (FI) is a company engaged in the business of dealing with financial and
monetary transactions such as deposits, loans, investments, and currency exchange. Financial
institutions encompass a broad range of business operations within the financial services sector
including banks, trust companies, insurance companies, brokerage firms, and investment dealers.
A financial institution is an organization that deals in a variety of monetary transactions, such
as cash deposits, loans, exchanging securities, and raising capital. It intermediates transactions
between the people who deposit or invest money and the people who need to borrow or raise
money.
Financial institutions are businesses that provide different types of financial services to
customers. They use the funds that customers provide, then distribute funds to individuals and
businesses who need them. Thus, they connect savers and spenders to facilitate transactions in
the financial markets. For example, these businesses make it possible for borrowers to obtain
loans using the funds that savers have made available.
These organizations also play roles in helping customers raise funds and invest their money. This
includes facilitating the buying and selling of securities like bonds and stocks. Some financial
institutions also assist customers with protecting their assets, alongside helping them with
managing their money. For example, some will offer insurance policies that protect homes or
cars from financial loss. Financial institutions may also buy and sell foreign currencies.
Two of the most common examples of financial institutions are consumer banks and credit
unions. These institutions allow customers to open checking and savings accounts to securely
and conveniently hold their money. Banks and credit unions then use customer deposits to
extend loans and credit to other customers, generating revenue through charging interest. You
can also manage a variety of other tasks through these institutions, such as cashing checks,
exchanging currencies, investing money in a retirement account, and paying bills
Depository vs. Non-Depository
Financial institutions fall into two categories: depository and non-depository institutions.
Depository institutions include deposit-focused businesses such as credit unions, banks, and
savings associations. In contrast, non-depository institutions include brokerage firms and
insurance companies.

Types of Financial Institutions

There are various types of financial institutions that can meet your specific needs. They can be
for-profit or nonprofit, serve different types of customers, provide a specific purpose, or focus on
certain services. The main types of financial institutions include:
Retail and Commercial Banks
Retail and commercial banks allow you to open deposit accounts and access a wide range of
financial services related to saving and borrowing money. Retail banks serve individuals, while
commercial banks serve business customers.
Online banks and online banking platforms may not have physical locations, but they do offer
some of the same kinds of financial services as brick-and-mortar banks.
A commercial bank is a type of financial institution that accepts deposits, offers checking
account services, makes business, personal, and mortgage loans, and offers basic financial
products like certificates of deposit (CDs) and savings accounts to individuals and small
businesses. A commercial bank is where most people do their banking, as opposed to an
investment bank. 
Commercial banks offer a wide range of consumer banking services. Typical services include
certificates of deposit (CDs), savings and checking accounts, credit and debit cards, etc.
Commercial banks are for-profit institutions that generate income through interest rate spreads
and transaction fees.
The interest rate spread is the difference in interest rates that banks charge on loans and the rates
they pay on deposit accounts. The spread fluctuates greatly across various economic cycles. In
prosperous economic times, the spread is generally wider. The widened spread allows these
institutions to generate more income.
Conversely, during times of economic recession, banks may need to incentivize consumer
spending by lowering interest rates on loans. This compresses their profit margins.
Offering higher interest rates on savings accounts may incentivize consumers to hold more
money in these accounts. The practice, in turn, may reduce consumer participation in the capital
markets.
Transaction fees make up a substantial amount of revenue for commercial banks. Such fees
include usually recurring charges on credit cards and fees for transfers or other financial services.
Since commercial banks essentially monopolize the market, they are able to charge premium
prices without seeing excessive erosion in demand.

Credit Unions
credit unions (or similar cooperative institutions). They offer services similar to commercial
banks, but usually on a smaller scale. Credit unions are not-for-profit institutions, where the
depositors are its shareholders. As a result, credit unions face smaller pressures to generate
profits. This means that they typically charge lower interest rates on loans and offer higher rates
on deposit accounts. Transaction fees are also relatively low because credit unions do not
perceive them as revenue drivers. They are viewed more frequently as services that can be
offered at cost.
Nonetheless, there are some disadvantages to credit unions. Due to being much smaller
institutions, credit unions lack a big brick-and-mortar presence. This is likely to dissuade
consumers that prefer banking services being delivered in-person. Credit unions also employ less
advanced technology than banks, making their online banking services less secure. Credit unions
also have fewer employees and are open for shorter hours than commercial banks.

Differing from banks, credit unions reinvest money made from charging interest so they can
keep costs low and benefit their customers. These depository organizations usually target a
specific community or group of people and require membership. They offer a variety of
traditional banking services that range from checking and savings accounts to credit card and
loan programs.

Banks and similar business entities, such as thrifts or credit unions, offer the most recognized
and frequently used financial services: checking and savings accounts, home mortgages, and
other types of loans for retail and commercial customers. Banks also act as payment agents
via credit cards, wire transfers, and currency exchange.

Insurance Companies
Among the most familiar non-bank financial institutions are insurance companies. Providing
insurance, whether for individuals or corporations, is one of the oldest financial services.
Protection of assets and protection against financial risk, secured through insurance products, is
an essential service that facilitates individual and corporate investments that fuel economic
growth
Insurance companies offer various types of insurance policies to offer financial protection. For
example, insurance companies often sell products such as life, health, and home insurance. They
put the money that comes from insurance premiums into a pool to fund the policy coverage.
Brokerage Firms
Brokerages assist with transactions regarding securities such as stocks, mutual funds, and bonds.
People who want to buy or sell securities use brokerage firms to facilitate the transaction. Some
firms also offer financial advice and act as consultants.

Investment companies and brokerages, such as mutual fund and exchange-traded fund (ETF)
provider Fidelity Investments, specialize in providing investment services that include wealth
management and financial advisory services. They also provide access to investment products
that may range from stocks and bonds all the way to lesser-known alternative investments, such
as hedge funds and private equity investments.

Savings and Loan Associations

Also known as “thrift institutions” and less common to find, these depository institutions mainly
focus on offering home loans and savings accounts. However, some also have other types of
loans and account options, so they can seem similar to retail banks at times.
Investment Banks
Investment banks work with corporations, governments, and other institutions that need capital
and financial advice. They don’t deal with customer deposits, but rather assist with financing
through securities such as bonds and stocks. They also offer advice on business planning and
decisions such as mergers.

Banking system around the world:

In the prevailing world, commercial bank management systems are similar in principle.
Dissimilarities exist in the scope of commercial banking activities in different countries.
Communist countries’ commercial banking systems are completely different. Capitalist countries
differ in respect of free-market economic banking activities.
From this perspective, we can divide the major commercial banking systems in different
countries into the following groups:
1. Anglo-American Banking System
2. German Universal Banking System
3. Japanese Main Banking System
 4. Indian Lead Banking System
These are briefly introduced below:
1) Anglo-American Banking System
This system is prevalent in most of the countries in the world. There are differences between
commercial banking and investment banking. Commercial banks cannot operate investment
banking activities.
Separate investment banks or merchant banks are established in these countries for the operation
of investment banking activities. Besides, this system does not allow the transactions of shares or
securities for different clients’ accounts.
However, this practice does not apply to Indian banks. Commercial banks cannot be the owner or
directors of other corporate houses by purchasing sufficient shares. The relationship between
commercial banks and corporate houses will be a creditor and client relationship: not the owner
relationship.
2) German Universal Banking System
This system is prevalent only in Germany. There is no difference between commercial banking
and investment banking in this system. Commercial banks can operate any business activity.
Commercial banks can buy up to 40% shares of corporate firms and participate in the firm’s
ownership. In this system, a commercial bank can monitor any firm in two ways: first as a
creditor and owner/director. Commercial banks participate in determining fiscal policy along
with investments.
So. this type of commercial banking system is called universal banking system or relationship
banking.
3) Japanese Main Banking System
Japanese Main Banking System is closely related to relationship banking. There are differences
between investment banking and commercial banking in this system, but commercial banks have
no restriction to participate in the ownership of the corporate firm. This is the hybrid form of the
above two systems.
That is. Banks cannot participate in investment banking activities. The bank can buy a 5% share
of any company and participate in the ownership. In this system, banks can monitor the
companies as owners and creditors.
Banks can influence the formulation of the financial and investment policies of these firms.
Banks also can undertake the management responsibility temporarily in the time of financial
crisis of these firms.
That is, Banks maintain a long-term relationship with the client firms.
Only one controller bank is present in the main banking system. A company’s main bank is the
bank that gives the highest loan (10–20%) to that company and becomes the principal
shareholder (5%) of that company. Besides, all the banking transactions of that company are
performed through this bank.
4) Indian Lead banking system
Indian Lead banking system was developed in India by the end of 1960. Every lead bank
performs extra responsibilities with the existing commercial banking system.
The purposes of this system are to increase the rate of savings, equitable allocation of financial
resources based on some criteria to various sectors of the economy and increase investment
efficiency.
The Lead Bank Scheme is a scheme that aims at providing adequate banking and credit in rural
areas through a ‘service area approach’, with one bank assigned for one area. It was introduced
in 1969 in view of this aim.

On the recommendation of the Gadgil Study Group and Banker’s Committee, the Scheme was
introduced by RBI. As per the studies by the committees, it was found that the rural areas were
not able to enjoy the benefits of banking.  Also, that the commercial banks did not have an
adequate presence in rural areas and also lacked the required rural orientation which was
hindering the growth of rural areas.

To address this issue, it was decided that some areas or sectors will be given to the banks
whether private or public in which that bank had to play a lead role in providing financial
services to the people, making them aware about   

Banking system Around the Globe (Conti..):

According to Antoine Van Agtimal, an economist from the World Bank, emerging markets, also
known as developing markets, are those economic systems whose performance is ranked from
low to middle per capita income. Based on these statistics, almost 80% of the world’s population
is represented in emerging market societies. Because of globalization, emerging market
economies are dynamic and in a state of constant change. International trade through
globalization facilitated emerging market societies in transforming from closed economies into
open economies. Consequently, many aspects of the financial and economic system had to be
changed to accommodate global transactions. To name a few, accounting standards, product
safety, and exchange rate based on the political and economic condition of the nation, rather than
central banking’s interference. For further information, please see Footnote #1.
The political vocabulary identifying third world countries comes from the notion that there are
three different economic societies: 1) industrial economies that are considered capitalistic
economies, such as the US/Canada, Western Europe, Japan, Australia are considered one
economic system; 2) industrial economies that are not considered capitalistic economies, such as
the Soviet Union, China, Eastern Europe are another economic system; and 3) the nations that
are neither, such as Latin America, Africa (not including South Africa), the Middle East and
most of Asia. The latter societies became known as third world countries. Later on, to be
politically correct, they were named “under-developed nations” (they didn’t like that either), and
eventually they became known as “developing nations/emerging markets.”
Of course, there are degrees of development, based upon gross domestic products among these
nations. For example, Haiti is a developing nation, and so is Argentina. However, Argentina’s
economic activity is much greater than Haiti’s. Most of these nations receive economic
development aid from the World Bank (WB) and/or the International Monetary Fund (IMF). The
main objective of the economic aid is to foster global financial cooperation, financial stability
and international trade, sustain economic growth, and reduce poverty. During the past 60 years,
the task of promoting economic development by the said agencies has been challenging, since
the technological advancement an regional economic agreements helped many nations to
advance economically more quickly than others, and many controversial adjustments in loan
syndication had to be made in response to these challenges. The case of Argentina’s economic
development with the help of the IMF a few years ago is a good example of the said challenges.
International banks were not immune from the challenges brought about by globalization,
economic interdependencies and political unions either. Many new menus of financial services
had to be invented to satisfy foreign investment activities and international trade. Thus, the
orientations of retail and commercial banking had to be modified. For example, the new trend in
international finance is the convergence of several financial entities into one that offers financial
services, insurance services, and other services that traditionally were offered by non-bank
financial institutions. For further information, please see Footnote #2. Universal banking appears
to be the most important dominant trend in IB in the 21st century, which means the barriers that
have limited the banking institutions in undertaking investment activities are gradually fading.
Even though the tendency in the global market is for the above convergence, the international
bank and its services still remain intact as a powerful source offering financial services. We are
going to discuss different banking systems that, though there are considerable similarities, their
orientations are different, based upon the political and economic structure of the country in
which they are located.
Cultural differences and economical interdependencies force multinational firms to adjust their
operation within the boundaries of that economic entity to fit within the parameters of that
culture in order to be successful economically. This is very true with international banks,
whether they have operations within OECD countries, or the banking system in emerging
markets. For further information, please see Footnote #3. To elaborate on the issue of operational
adjustment, since many nations are experiencing political and economic volatility, international
banks are obliged to format their operations based upon these variables. In this module, we are
going to also discuss the banking systems of various nations around the world.

The OECD Banking System

Established after World War II, the OECD was given the responsibility of functioning as the
focal point for economic development in societies where development was urgently needed.
Eventually, most industrial nations became members of this organization, and membership in the
organization was considered an indication that the country had reached a relatively high point in
economic development and industrialization. Gradually, some emerging market economies were
allowed to join, and overall membership in the organization meant that either the country was on
the threshold of becoming industrialized, or had already reached to that plateau. As OECD
membership grew, the banking system within those societies evolved from performing traditional
banking practices to gradually embracing universal banking practices. European economies were
in the forefront of practicing universal banking, which meant not only were they deposit takers
and loan packagers, but they also offered insurance services and security underwriting. This form
of banking operation gave the title of “one-stop financial supermarket” to the banking system in
European economies. For further information, please see Footnote #4.

The United States’ Banking System

The banking system in the U.S., since its inception in the 1780's, has gone through massive
changes from being decentralized and regionally supervised banking operations to centralized
control by the Federal Reserve System from 1913 to the present time. The U.S. banking system
has endured many banking panics and financial crises up to 1913, when the U.S. enacted the
Federal Reserve Charter that assigned responsibility to that entity for regulating and establishing
centralized control of the banking system, hoping banking crises would be averted. For further
information, please see Footnote #5.
However, in 1929 the U.S. experienced a massive economic downturn, known as the “Great
Depression,” that became a catalyst for the Federal Reserve’s involvement in a complete
overhaul of the operations of the banking system throughout the U.S. The Glass-Steagall Act,
established toward the end of the Great Depression, prohibited commercial banks from
underwriting corporate securities. For further information, please see Footnote #6. This law was
intended to guarantee that the reserve of the banking system that was received from depositors
was not used by the bank in their investment activities in the securities market. In addition, the
Glass-Steagall Act established the Federal Deposit Insurance Corporation (FDIC) which
prohibited bank managers from tapping into depositors’ deposits for the purpose of expanding
the bank’s profitability through the purchase of securities for speculative purposes. Enactment of
the Glass-Steagall Act completely removed any speculative agenda by the bank managers from
the bank’s daily operation. This law brought confidence to the financial market, since investors
were guaranteed not only that their deposits were insured, but also that the bank manager’s
power for underwriting corporate securities was eliminated. In the contemporaries, studies show
that, contrary to popular opinion, the bank manager’s involvement in the securities market was
not entirely the responsible agent for the collapse of the banking system and financial market at
that time.
There were several attempts at repealing the Glass-Steagall Act during its tumultuous life, and
eventually it was amended by permitting U.S. banks to establish a separate entity that deals with
the speculative portion of a customer’s portfolio, while the bank itself guarantees and safeguards
the depositors’ deposits and conducts its operation by receiving deposits and packaging loans.
The Glass-Steagall Act was eventually sunsetted in 1999. After repeal of the Glass-Steagall Act,
the U.S. financial market has been experiencing full participation of the banking system in the
financial market for speculative purposes. Federal Reserve and Securities Exchange Commission
(SEC) examiners ensured that proper internal controls were in place between these two
operations of the banking system. For further information, please see Footnote #7. The U.S.
banking system is regulated and supervised by the Federal Reserve and the Office of the
Controller of the Currency (OCC). The OCC is the primary nationally chartered bank
supervisory agency, whereas the Federal Reserve has authority over bank holding companies.
The Federal Reserve conducts its monetary policy through banking institutions and provides
regulations for the bank’s required reserve. The FDIC and some various committees of the U.S.
Congress also have authority over the banking system in the U.S. All foreign banks in the U.S.
are under the jurisdiction of the federal and state banking authorities. For further information,
please see Footnote #8.

Japan’s Banking System

Even though the Japanese banking system experienced a tumultuous period during the 90's, they
are still considered a powerful force in financial, economic and lending activity throughout the
world, especially emerging market nations. Japanese banks dominated the top ranks of banks, in
terms of asset size, throughout the first half of the 90's before the Japanese banking crisis crept in
and caused major restructuring and substantial changes in the late 90's and early 2000's.

Their banking orientation is to provide finance for Japanese multinational corporations and loans
to governments and corporations all over the globe. Cultural issues play an important role in the
Japanese political, economic and industrial interaction in that society. For further information,
please see Footnote #9.
Japanese multinational banks are in close economic relationship with non-banking corporate
entities, and this relationship is sanctioned by the Japanese government. The main focus of the
Japanese banking system is similar to any other traditional banking system’s operation of taking
deposits and packaging loans.
Ever since the banking crisis of the 1990’s, the Japanese banking system changed their
orientation from traditional banking activities to the new model of the banking system known as
the universal model, which encompasses traditional banking operation plus securities market
activity and industrial development loans. These changes revolutionized the Japanese banking
system from the disastrous undertakings of the decade of the 90’s. For further information,
please see Footnote #10.

Eventually, the universal model was eliminated, and Article 65 was enacted. Article 65 was like
the Glass-Steagall Act, separating the securities industry from the traditional banking operation.
In the 90's, measures were taken to dismantle Article 65, like the measures that were taken in the
U.S. for repealing the Glass-Steagall Act. For further information, please see Footnote #11.

Globalization of the financial market caused the decline of traditional banking operations in
Japan, those of deposit taking and loan packaging, and introduced Japanese banking into the
global market as a provider of a wide range of financial services. Large Japanese corporations
held a large number of shares of a particular banking system (city banks), and the banks carried
out a large percentage of the financial activities of the said corporations. This close relationship
guaranteed the financial health of both entities. Though, from an operational standpoint,
everyone benefited from this relationship, it closed the door for any outsiders to establish a
relationship with the banks, especially in acquiring equity. The consequence of this close-knit
relationship was enormous, as far as the Japanese economy was concerned. For instance,
Japanese corporations’ dependence on bank financing created a situation in which the Japanese
economy became dependent on the financial support of large Japanese banks. This, coupled with
the high level of corporate debt, provided an obstacle for the capital market to become
stimulated.
The Japanese banking system implemented a complete overhaul of its operational orientation in
the late 1990’s, after experiencing a tumultuous era in the early and mid 1990’s. The overhaul
included measures to be more prudent in loan packaging activities. Also, the overhaul brought a
series of checks and balances within the banking system by establishing the Financial
Revitalization Commission (FRC) that placed the Financial Supervisory Agency (FSA)
under its control, which is the primary bank supervisory agency. For further information, please
see Footnote #12. We can conclude that the Japanese banking system is a great testimony to the
process of globalization of financial services and banking activity that one cannot escape. Since
Japan is a member of the G-8 industrial countries, measures are being taken to eliminate the
functional barriers for banking operation that have existed between Japan and the other members
of the G-8.

European Banking System

The banking orientation in the European Union (EU), like every other advanced industrial
nation, is universal in nature, which makes no distinction between the securities market and
traditional banking activities (underwriting securities, insurance services), and is governed by the
rules and regulations enacted by the EU. For further information, please see Footnote #13.
Because of their geographical proximity and several hundred years of historical commonality in
the evolutionary processes of IB activities, all nations within the EU are experiencing a high
level of economic development that guarantees long-term financial health of the international
banks which have a presence in large European cities. Like every other commonality that exists
among the European nations, such as political, economic and social, the IB system is also
experiencing standardization that can complement other aspects of the EU’s financial and
economic life, such as bank consolidations and inclination towards incorporating financial
market activity into the operation of the banking system. This new menu of financial services
offers customers portfolio packaging coupled with traditional banking services of deposit taking
and loan packaging. Additionally, standardization of the currency (Euro) is creating a ripe
environment for economic development and financial activity by the IB system that is removing
some of the cultural barriers that existed before the European unification. All foreign banks fall
under the jurisdiction of the banking authority of the EU. For further information, please see
Footnote #14.

United Kingdom
Because of its historical importance, and a banking system with economies of scale, England is
the most important member of the EU, as far as IB is concerned. The United Kingdom’s
banking system can be categorized into four (4) different groups: 1) clearing banks (active in
financial services such as export finance, corporate finance, foreign exchange, advisory services,
and IB); 2) building societies (active in the residential mortgage market, life insurance, pensions
and investment products) with 200 years of banking services experience; 3) investments banks
(active in providing financial services to United Kingdom corporate entities); and 4) foreign
banks (providing security and investment services, since London is the host to several hundred
representative offices and security houses, thus making London the leading financial institution
internationally).
The Bank of England is the primary regulatory institution within the United Kingdom. The
regulatory authority over building societies is the Building Societies Commission. The
regulatory bodies of the banking system in the United Kingdom were consolidated and known as
the Financial Services Authority (FSA), working under the auspices of the Bank of England. For
further information, please see Footnote #15. Since England is a member of the EU, its banking
system falls within regulatory authority of the EU Banking Commission.

France
France, as an EU member and one of the largest industrial economies of the world, plays a very
important role within the EU and globally, as far as IB and finance are concerned. Like every
other international bank, whether in the EU or outside, the French banking system has gone
through considerable changes, such as privatization and consolidation. Like their European and
international counterparts, the main orientation of the French banking system is universal
banking, which offers a wide variety of financial services to its clients within France and the EU
as a whole in addition to the traditional banking services of deposit taking and loan packaging.
The French banking system is comprised of savings institutions, retail banks and specialized
banks.
The major catalyst for changes that occurred in the French banking system in the past 20 years
was the advent of the socialist government in 1981. This major political change was the
responsible agent for the banking system to become nationalized, which resulted in the massive
deregulation of the banking system. Even though these changes significantly helped the social
fabric of the French society, the idea of banking system nationalization eventually evaporated.
Aside from being regulated by the EU Banking Commission, the French banking system is under
the jurisdiction of the Commission Bancaire, which is a subsidiary of the central bank in France
known as Banque de France. Banque de France has jurisdiction over the Credit Institutions and
Investment Firms Committee, which is responsible for approving credit for investment
institutions. The Banking and Financial Regulatory Committee is responsible for enacting
regulation for both credit and investment institutions. The activities of these two institutions and
their staff are coordinated by Banque de France. The Commission Bancaire has authority over
all credit institutions and their financial health. The Central Bank of France (Banque de France)
has the function of lender of last resort, similar to the function of the Federal Reserve System in
the U.S. For further information, please see Footnotes #16 and #17.
One can conclude that any political changes in France will most likely influence the banking
structure and its orientation, since economic ideology is very strong among French nationals.
Germany
As with many other European counterparts, universal banking is predominantly practiced in
Germany. The German economy is the strongest among EU nations and the third largest in the
world. As a result of being highly industrialized and being the third largest economy in the
world, the role of the German banking system in the domestic economy and worldwide
involvement in trade and loan syndication cannot be ignored. The German banking system can
be grouped into commercial banks, savings banks (local, state and central) and cooperative
banks. As such, aside from playing a major role of providing financial services (universal
banking), German banks are also involved in a traditional banking operation of deposit taking
and loan packaging. Having the flavor of a socialistic economy, German savings banks’ main

orientation is towards enhancing economic development that advances the welfare of the society
from its foundation. Major international banking activities are conducted by Germany’s
commercial banking institutions. The German banking system is regulated both by the
institution known as the Supervisory Office and the Central Bank of Germany. For further
information, please see Footnote #18.
Since the globalization of economic and financial activities reduced the gap between major
industrial nations and emerging market societies, special attention is given to the relationship
between the banking system and economic and industrial development. At this point, we will
discuss some of the banking systems in emerging market economies.
Mexico
Historically, the Mexican banking system, like every other developing nation’s banking system,
evolved from the traditional banking activities (deposit taking and loan packaging) into offering
financial services and portfolio management (universal banking). Mexican financial regulation
authorizes foreign banks to operate in Mexico. In the past two decades, the Mexican banking
system has gone through major changes, such as nationalization, privatization, and economic
crisis, and almost collapsed during the early 1980's. Mexico was forced to reschedule its
external debts, since it was experiencing a severe economic crisis at the time. Consequently, the
government nationalized the banking system in order to control economic decline. This process
provided a cheap source of funds to the government agencies for their expenditures. A massive
vacuum was created as a result of this process that led to the crowding-out of private investment
(known as the crowding-out effect, which means when the government borrows a large amount
of capital in the financial market, it leaves private investors with little opportunity for borrowing
activity). For further information, please see Footnote #19.
Mexico’s banking system was deregulated in the 90’s, and the major focus of the banking
operation was directed towards loan packaging and credit services. Deregulation, coupled with
major corruption in the political and financial systems, incompetence, and a lack of central
control, resulted in major risk taking by the banking management and brought a banking crisis
into the Mexican economic theater. The high interest rates in the Mexican economy at the time
forced the private sector out of investment activity, which compounded the problems with the
Mexican banking system. For further information, please see Footnote #20.
The banking system in Mexico endured serious hardship from the 1994 peso crisis (the Mexican
currency). The economic system, in line with the banking system, suffered a great deal since a
higher interest rate made borrowing and the cost of capital very high. The demand for economic
products declined, and the private sector’s borrowing capability declined drastically.
Consequently, the Mexican bank’s loan portfolio declined significantly. As a result, several
entities were established to monitor the banking activity and provide a system of checks and
balances. This was similar to the U.S. banking crisis of the 80's, where the U.S. government
created an entity known as the Resolution Trust Corporation (RTC). Though its function was
different, its existence helped the consolidation and overall health of the banking system in the
U.S. Also, a major campaign concerning the health of the Mexican economy was conducted to
allow foreign investors to invest in the Mexican economy, an activity from which they were

previously prevented, since the Mexican banking system was heavily regulated (I guess, since
the U.S. and Mexican war that led to the ownership of Texas by the U.S., there was a certain
level of distrust for investment activity by the “Yankees”).
The Mexican banking sector endured a series of struggles during the mid- and late 1990's. The
Mexican government’s program of bailing out the banking system partially prevented the
collapse of a major banking system in Mexico. Even after a massive bailout by the Mexican
government, Banco Serfin, one of the largest banks in Mexico at the time, had to embark on a
major overhaul of its operation to become profitable. The Mexican banking crisis eventually led
into a massive bailout by a consortium of foreign multinational banks that eventually brought
stability to the Mexican economic system to the point that Mexico was able to pay back its loan.
Today, Mexico’s economic and banking systems experience relative stability and Mexico is
considered to be one of the advanced emerging market societies. For further information, please
see Footnote #21.
Indonesia
When discussing the banking system in Indonesia, one cannot separate the political and
corruptive influences in the banking system throughout Indonesia. The Indonesian banking
system collapsed in the late 90's, during the Asian Tigers (some of the Southeast Asian countries
combined are titled so) banking crisis, and it went through a complete overhaul and
reconstruction process. The collapse of the government of President Suharto exacerbated the
deterioration of the financial market and the operation of the banking system.
The banking system in Indonesia is universal in nature with close and peculiar ties to various
multinational corporations. The Central Bank of Indonesia is presently active in the restructuring
process of the banking system. The Indonesian Bank Restructuring Agency (IBRA) was created
to help the process of restructuring. Furthermore, steps were taken by the government of
Indonesia to enhance public confidence in the banking system. For further information, please
see Footnotes #22, #23 and #24.
India
The banking system in India used to be known to lack economies of scale and took many years
to realize relative efficiency, due to the absence of available technology. Historically, the
banking system in India was established and managed by the locals. Establishment of the first
Indian commercial bank was a dream and aspiration of a banker that took pride in having an
independent Indian bank devoid of foreign dominance.
The State Bank of India evolved administratively, benefiting from British bureaucratic discipline
under Commonwealth status, but it was slow to realize the efficiencies of other banking systems
in its counterparts. For further information, please see Footnotes #25, #26 and #27.

China
The Chinese banking system is diversified to accommodate many sectors of economic activity in
the urban and rural areas of China.
Under socialist/communist ruling, China’s banking system functions as a government fiscal
agent, rather than conducting western-style traditional banking. Though the old model of state
banks was to channel capital to different industrial sectors of the country, this model is gradually
being dismantled. The four commercial banks that were mentioned in reference #28 were
established in the 80's, and a major overhaul of the banking operation was implemented in the
mid 90’s. This overhaul is responsible for Chinese banks becoming more market driven and
competitive with their foreign counterparts by replacing the old and antiquated banking system.
Further changes in the banking orientation were implemented by the Industrial and Commercial
Bank of China (ICBC) with consolidation of the core business activities and improvement of
liquidity issues. The ICBC has developed a menu of services, such as project financing and
investment banking, and continues to provide services required by the industrial sector of
China’s expanding economy. With all the changes that have occurred within the Chinese
banking system, their participation is limited when it comes to competing with foreign
multinational banks, since the operations of the foreign banks are already restricted by Chinese
banking regulations. Overall, the Chinese banking system offers limited financial services and it
is not in line with the rest of the emerging market and OECD economies. New guidelines have
been put in place with the emergence of the commercial banking system to enable them to
provide financial services in line with those of the foreign banks.
Being a member of the World Trade Organization (WTO), China is forcing its banking system to
become more competitive and improve their performance. The WTO required that China enact a
liberal policy that allowed foreign banking systems to be able to compete with their domestic
Chinese counterparts. China’s banking system is plagued with management incompetence that
has resulted in massive risk taking when conducting banking transactions with customers, or
conducting speculating activity in the financial market. There are few checks and balances
within the Chinese banking bureaucracy to prevent risk taking activities by the bank managers,
but steps are being taken to rectify the situation. The Chinese banking system is regulated by the
Central Bank of China, known as the People’s Bank of China (PBOC). There have been
continuous efforts by Chinese law makers to provide more latitude, in terms of banking
operations and competitiveness, to the Central Bank of China that will trickle down to other
banking systems, especially the other four large commercial banks that were referenced before.
With the expansion of economic activity in China, and their involvement into world financial
and capital markets, China’s banking system is bound to take the necessary steps to educate the
workforce, replace antiquated regulations, and solve liquidity problems within the four largest
commercial banks, eliminating the Chinese government’s subsidization of the banking system.
And lastly, the Chinese banking system needs to equip itself with modern technology to be able
to compete in the world of e-commerce and internet banking. For further information, please see
Footnotes #28, #29 and #30.

10
South Africa
The South African Reserve Bank plays an important role similar to the central banking of some
of the industrial nations. Monetary policies (expansionary/contractionary) are devised and
implemented by the said bank. They maintain the gold reserve and oversee the foreign exchange
reserve. One of the functions of the South African Reserve Bank is to issue currency, and they
are the fiscal agent of the government. The South African Reserve Bank’s macro-orientation is
to help customers (savers and investors), government agencies, and other banking systems.
Additionally, since they also play the role of “lender of last resort,” they help the banking system
to avoid liquidity problems that could be harmful to economic activity and the financial market
in South Africa.
The major challenge that faces economic activity and monetary control for the Reserve Bank is
to control recessionary and inflationary forces that have been haunting this nation, with massive
social deviations and issues such as racial tensions, political dynamism, and tribalism. The
orientation of the banking system in South Africa evolved from the 1950’s to the present time.
A major overhaul of the banking system in South Africa took place in 1991, uniting the banking
system with the financial market. As a result, the South African banking system provided more
services to the underprivileged and satisfied the requirements for capital adequacy.
The South African banking system is enjoying a certain level of sophistication, due to the
utilization of the most advanced technology from which the banking system can benefit. The
South African banking system’s main orientation is similar to many other advanced industrial
nations, such as traditional banking activities (deposit taking and loan packaging) plus portfolio
management and financial market speculative activity. As the apartheid system gradually gave
way to more inclusion of everyone in the society, the country benefited from this process by
removal of the economic sanctions that had been imposed on the South African nation by a large
majority of the nations around the globe. This removal of economic sanctions further improved
South Africa’s global identity and consequently created economic vitality for the nation.
The ultimate banking authority in South Africa is the Registrar of Banks that oversees and
regulates the South African Reserve Bank’s operation. For further information, please see
Footnotes #31 and #32.
Russia
With the collapse of the Soviet Union, the Russian banking system faced major challenges such
as going through the transition from a government controlled economy to a market controlled
economy. Just to deviate briefly from the subject of the banking system, I would like to give my
humble opinion, as far as the collapse of communism and eventual disintegration of the Soviet
Union is concerned. Many believe that Ronald Reagan had something to do with the collapse of
the Soviet Union. However, for every political and economic ideology, there is a birth and there
is a death. The birth occurs as a result of necessity, since the masses believe that the existing
system is corrupted and antiquated, and through either peaceful or violent resolution, the system
changes through the process of action/reaction, thesis/antithesis, and cause/effect. Political and

11

economic history is a testimony to the fact that reactionary forces revolting against the existing
ruling sector caused political and economical changes within the society where the process
occurred. The collapse of the Soviet Union was the result of the failure of a doctrine that
promised and promoted economic and political freedom to the masses, but was unable to bring it
into reality.
The administration and orientation of the financial system, hence banking operations, were
controlled by the state. Therefore, the central bank was under the control of the State of the
Soviet Union, which managed all banking operations, including credit requirements, currency,
and checks and balances.
After the collapse of the Soviet Union, Russia made advances in the operation of the financial
market and the banking system in conjunction with the assimilation of the market economy into
Russian society.
In the old Soviet banking system, state banks allocated credit throughout the economy under
political pressure, and played the role of the state’s fiscal agent. After the collapse of the Soviet

Union, the Russia’s economic system shifted from a centrally-planned economy to a market-
oriented economy. This inevitably meant that the banking system needed to provide services

that the new system embraced.

The Russian banking system is still going through a necessary transition in order to meet the
challenges brought by globalization, but the path of this transition has been relatively difficult
and often plagued with repetitive crises. The Russian banking system is universal banking in
nature. As we mentioned before, since the collapse of the Soviet Union, the Russian financial
sector and banking system made major advances while transitioning from the centrally controlled
economic system to a market economy.
The Central Bank of Russia oversees and regulates the banking system and is the lender of last
resort. The Russian banking system has gone through a tumultuous period from the time they
embraced a market oriented economy. The transition has been hard, since a market economy
brought a certain level of transparency and economic greed, coupled with incompetent bank
managers and regulators. Russia was invited to join the then G7 industrial nations as a guest,
since they still maintain a certain level of political, economical and military influence. (With all
that, you have to be very careful how you treat Russia, since they have roughly 20,000 nuclear
warheads, and you know sometimes anything goes). For further information, please see
Footnotes #33 and #34.
Islamic Banking
A quote of Islamic Law dictates that interest cannot be collected nor paid by lenders and
borrowers, respectively. Borrowers are obliged to share a percentage of the profit realized from
the borrowed funds with the lenders. With the modern banking system and globalization, this
law is becoming a major challenge for the IB operation in strict Islamic societies that enforce the
usury law. Like any other financial market and banking system, the Islamic society has gone
12

through major changes/challenges and evolved from the 19th century to the present time,
enduring the colonialist rule dictating economic activity and trade.
Unlike all the western banking systems whose operation and survival are based upon collecting
interest – the sole motivator for the creation of banks – as mentioned above, the Islamic banking
system follows a religious edict and belief that dictates prohibition of usury in the process of
banking operation. In the western banking style, when a loan is given, the borrower must pay
interest when borrowing money and must compensate the lender within an agreeable period of
time. This process of the western style banking activity is forbidden. Instead, the borrower pays
to the lender a certain percentage of the profits that he gained from the borrowed assets in the
form of compensation to the lender.
Full implementation of the Islamic banking code requires Islamic countries to take a major step
in the area of eliminating the economic business cycle and instituting legal and institutional
reform. Although it is difficult for many multinational banks to change their operation and
orientation to compliment the Islamic banking codes, there are a few multinational banks, such
as Citibank, that are successfully operating in some Islamic societies. The operation of the
banking system in Islamic society is not only achieving profit, they are also expected to be in the
forefront of the social responsibility for the less privileged. The most prominent Islamic bank is
the Islamic Development Bank.
With the rapid advancement in the financial, economic and international trade activity brought
about by globalization and the invention of the Internet, Islamic societies are compelled to make
necessary adjustments in the areas mentioned above. These adjustments must be made in order
to attract a higher level of foreign investment to stimulate domestic economic activity, which
will increase employment and the standard of living. For further information, please see
Footnotes #35 and #36.
Conclusion
During this module, you gained knowledge of the development of different banking systems
throughout the world. With that in mind, you should also be able to examine the cultural and
political parameters that were contributing factors to their distinctiveness.

13
FOOTNOTES

(1) What is an Emerging Market Economy?

http://www.investopedia.com/articles/03/073003.asp
(2) Universal Banking
http://www.allbusiness.com/glossaries/universal-banking/4942257-1.html
(3) Organisation for Economic Co-operation and Development
http://www.oecd.org/home/0,2987,en_2649_201185_1_1_1_1_1,00.html
(4) Financial Supermarket
http://www.investopedia.com/terms/f/financialsupermarket.asp
(5) Federal Reserve
http://www.federalreserve.gov/pf/pf.htm
(6) What Was the Glass-Steagall Act?
http://www.investopedia.com/articles/03/071603.asp
(7) United States Securities and Exchange Commission
http://www.sec.gov/
(8) Office of the Comptroller of the Currency
http://www.occ.treas.gov/
(9) Japanocentrism
http://www.newworldencyclopedia.org/entry/Ethnocentrism#Japanocentrism
(10) Japanese banking collapse threatens IT sector
http://online.wsj.com/article/SB10001424052970204313604574327783590022854.html
(11) The Bank of Japan Law
http://www.zenginkyo.or.jp/en/banks/banking_regulation/
(12) Statement by the Governor concerning the temporary nationalization of the Nippon Credit
Bank
http://www.investopedia.com/terms/f/financial-services-agency-fsa.asp#axzz1s8BMAfvh
(13) European Financial Regulation
http://www.riskglossary.com/articles/european_financial_regulation.htm
(14) Law & Policy – Banking guidelines to highlight impact of EU ecommerce laws
http://en.wikipedia.org/wiki/European_Banking_Authority
(15) Financial Services Authority

14
http://www.fsa.gov.uk/Pages/About/Who/index.shtml
(16) Banque de France
http://www.britannica.com/topic/Banque-de-France
(17) Efficiency and Resilience of French Multinational Banks: Evidence from the Pre-Euro Era
http://news-business.vlex.com/vid/efficiency-resilience-multinational-euro-61760021
(18) Germany’s Central Banking System
http://www.bundesbank.de/bankenaufsicht/bankenaufsicht_bafin.en.php
(19) Mexico Banking System
http://www.photius.com/countries/mexico/economy/mexico_economy_banking_system.html
(20) Economy of Mexico – Banking System
http://en.wikipedia.org/wiki/Economy_of_Mexico#Banking_system
(21) The Failure of the Mexico Bailout
http://www.developmentgap.org/americas/Mexico/The_Failure_of_the_Mexican_Bailout.htm
(22) Banking in Indonesia
http://www.asiatradehub.com/indonesia/banks.asp
(23) IBRA: Opportunity from Diversity
http://www.businessweek.com/adsections/indonesia/indonesia2.htm
(24) Government’s Bank Restructuring Measures
http://en.wikipedia.org/wiki/Indonesian_Bank_Restructuring_Agency
(25) Streamline core banking system, unions tell SBI
http://www.thehindubusinessline.com/2005/10/26/stories/2005102602170200.htm
(26) Sir Sorabji Pochkhanawala
http://www.bankipedia.in/focus-now_story-of-sorabji.htm
(27) India – Fiscal Administration
http://www.country-data.com/cgi-bin/query/r-6062.html
(28) China’s Opening to the World: What Does It Mean for U.S. Banks?
http://www.fdic.gov/bank/analytical/banking/2005nov/article1.html
(29) Industrial and Commercial Bank of China
http://www.google.com/finance?cid=709933
(30) WTO successfully concludes negotiations on China's entry
http://www.wto.org/english/news_e/pres01_e/pr243_e.htm

15

(31) South Africa – Banking

http://countrystudies.us/south-africa/70.htm
(32) South Africa’s financial sector
http://www.southafrica.info/doing_business/economy/key_sectors/financial.htm
(33) Russia – Banking and Finance
http://countrystudies.us/russia/62.htm
(34) Russia – Reform of the Banking System
http://www.photius.com/countries/russia/economy/russia_economy_reform_of_the_bankin~133
0.html
(35) Islamic Banking
http://users.bart.nl/~abdul/chap4.html
(36) Islam, Globalization, and Economic Performance in the Middle East
http://www.policyinnovations.org/ideas/policy_library/data/01326/_res/id=sa_File1/

Banking in Bangladesh

Nationalization of Banks
In the beginning of 1971, there were 1130 branches of 12 banks in operation in East Pakistan.
The foundation of independent banking system in Bangladesh was laid through the establishment
of the Bangladesh Bank in 1972 by the Presidential Order No. 127of 1972 (which took effect on
16th December,1971). Through the Order, the eastern branch of the former State Bank of
Pakistan at Dhaka was renamed as the Bangladesh Bank as a full-fledged office of the central
bank of Bangladesh and the entire undertaking of the State Bank of Pakistan in, and in relation to
Bangladesh has been delivered to the Bank.

Authorized Paid-up
New
Existing Bank Capital (Lac Capital(Lac
Bank
Tk.) Tk.)

The National Bank of Pakistan(Govt.), The Sonali

500 200
Bank of Behawalpur Ltd. Bank

The Premier Bank Ltd., The Habib Bank Ltd., Agrani

500 100
The Commerce Bank Ltd. Bank

Janata
The United Bank Ltd., The Union Bank Ltd. 500 100
Bank

The Muslim Commercial Bank Ltd., The Rupali

500 100
Standard Bank Ltd. Bank

The Austrasia Bank Ltd., The Eastern Pubali

500 100
Mercantile Bank Ltd. Bank

The Eastern Banking Corporation Ltd. Uttara 500 100

 Bank

Financial Institutions in Bangladesh:

Financial institutions can be divided in three categories in Bangladesh. Like:
A. Non-Banking Financial Institutions
B. Bank
C. Special Financial Institutions
A. Non- Banking Financial Institutions (NBFI): are those types of institutions those are
regulated under Financial Institutions Act 1993 and controlled by Bangladesh Bank. Now, 34
NBFI are operating in Bangladesh while the first one was established in 1981. Out of total 34
NBFI
a. Fully government owned- 02
b. Subsidiary of SOCB- 01
c. Initiated by private domestic- 15
d. Joint venture initiative- 15

Major sources of NBFI are term deposit (at least three months tenure), credit facility from banks
and other financial institutions, call money as well as bond and securitization.
Major features of these institutions are:
 Cannot issue cheques, pay orders or demand draft.
 Cannot receive demand deposits.
 Cannot be involved in foreign exchange financing and
 Cannot be a member of clearing house etc.

NBFI's include:
 Agrani SME Financing Company Limited
 Bangladesh Finance and Investment Company Limited (BD Finance)
 Bangladesh Industrial Finance Company Limited (BIFC)
 Bangladesh Infrastructure Finance Fund Limited (BIFFL)
 Bay Leasing & Investment Limited
 CVC Finance Limited
 Delta Brac Housing Finance Corporation Ltd. (DBH)
 Fareast Finance & Investment Limited
 FAS Finance & Investment Limited
 First Finance Limited
 GSP Finance Company (Bangladesh) Limited (GSPB)
 Hajj Finance Company Limited
 IDLC Finance Limited
 Industrial and Infrastructure Development Finance Company Limited (IIDFC)
 Infrastructure Development Company Limited (IDCOL)
 International Leasing and Financial Services Limited
 IPDC Finance Limited
 Islamic Finance and Investment Limited
 LankaBangla Finance Limited
 Lankan Alliance Finance Limited
 Meridian Finance and Investment Ltd.
 MIDAS Financing Limited. (MFL)
 National Finance Ltd
 National Housing Finance and Investments Limited
 People's Leasing and Financial Services Ltd
 Phoenix Finance and Investments Limited
 Premier Leasing & Finance Limited
 Prime Finance & Investment Ltd
 Reliance Finance Limited
 Saudi-Bangladesh Industrial and Agricultural Investment Company Limited (SABINCO)
 The UAE-Bangladesh Investment Co. Ltd
 Union Capital Limited
 United Finance Limited
 Uttara Finance and Investments Limited
B. Bank: An establishment authorized by government to accept deposits, pay interests, clear
cheques, make loans, act as an intermediary in financial transactions, and provide other financial
services to its customers termed as bank. After the independence, banking industry of
Bangladesh started its journey with 6 nationalized commercialized banks and 3 state owned
specialized banks and 9 foreign banks. In 1980’ banking industry achieved acceleration and
significant n by the entrance of private banks into the industry. Currently, banks in Bangladesh
are primarily categorized in two groups:
1. Schedule bank
2. Non-schedule bank

1. Schedule Bank: Scheduled bank is a bank which, by notification in the official gazette, is
declared as scheduled bank by Bangladesh Bank according to Article 36(2) of Bangladesh Bank
Order, 1972. Besides, the banks which get license to operate under Bank Company Act, 1991 are
termed as Scheduled Banks. There are 61 schedule bank who operate under full control and
supervision of Bangladesh Bank which empowered to do so through Bangladesh bank order,
1972 and Bank Company Act 1991. Scheduled banks are classified under two categories:
a. Specialized
b. Commercial
Criteria for a Scheduled Bank:
Bangladesh Bank may declare any bank to be scheduled bank under Article 36(2) of Bangladesh
Bank Order, 1972 which is carrying on the business of banking in Bangladesh and which-
i. is a banking company, or a co-operative bank, or a corporation or a company
incorporated by or established under any law in force in any place in or
outside Bangladesh;
ii. has a paid-up capital and reserves of an aggregate value of an amount not less
than that required to be maintained under section section 13 of Bank Company
Act 1991: Provided that in the case of a co-operative bank, an exception may
be made by the Bangladesh Bank;
iii. It is mentionable that Bangladesh Bank, being empowered by the provision
under section 13(2) of the Banking Companies Act, 1991 and in consultation
with the Government, through the notification no. BRPD(R ‐ 1)717/2008 ‐
511 dated August 12, 2008 has refixed that the minimum Paid-up Capital and
Reserve Fund of banking companies shall be Taka 400 crore, of which the
paid-up capital shall be not less than Taka 200 crore.
iv. satisfies the Bangladesh Bank that its affairs are not being conducted in a
manner detrimental to the interests of its depositors;
a. Specialized Banks (SDBs): three specialized banks are operating which were established for
some specific objectives. For instance, agricultural and industrial development. These banks are
fully or majorly owned by Bangladesh government.
i. Bangladesh Krishi Bank
ii. Rajshahi Krishi Unnayan Bank
iii. Probashi Kallyan Bank
b. Commercial banks: Commercial banks in Bangladesh are categorically three types:
I. State owned commercial banks (SOCBs)
II. Foreign commercial banks (FCBs)
III. Private commercial banks

State owned commercial banks (SOCBs): There are 6 state-owned commercial banks (SOCBs)
that are fully or majorly owned by the Government of Bangladesh.[1]
 Agrani Bank Limited
 Bangladesh Development Bank
 BASIC Bank Limited
 Janata Bank Limited
 Rupali Bank Limited
 Sonali Bank Limited

Foreign Commercial Banks (FCBs): In total 9 FCBs are operating in Bangladesh as the
branches of the banks which are incorporated in abroad.[1]
 Bank Al-Falah Limited (United Arab Emirates)
 Citibank N.A (United States of America)
 Commercial Bank of Ceylon PLC (Sri Lanka)
 Habib Bank Limited (Pakistan)
 HSBC (Hong Kong)
  National Bank of Pakistan (Pakistan)
 Standard Chartered Bank (United Kingdom)
 State Bank of India (India)
 Woori Bank (South Korea)

Private commercial banks (PCBs): There are total of 43 PCBs in operation right now. They are
majorly owned by private entities and classified into two types.[1]
Conventional PCBs
In total 33 conventional PCBs are now operating in the industry. They perform the banking
functions in conventional fashion i.e. interest-based operations.[1]
 AB Bank Limited
 Bangladesh Commerce Bank Limited
 Bank Asia Limited
 BRAC Bank Limited
 Citizens Bank PLC
 City Bank Limited
 Community Bank Bangladesh Limited
 Dhaka Bank Limited
 Dutch-Bangla Bank Limited
 Eastern Bank Limited
 IFIC Bank Limited
 Jamuna Bank Limited
 Meghna Bank Limited
 Mercantile Bank Limited
 Midland Bank Limited
 Modhumoti Bank Limited
 Mutual Trust Bank Limited
 National Bank Limited
 National Credit & Commerce Bank Limited
  NRB Bank Limited
 NRB Commercial Bank Ltd
 One Bank Limited
 Padma Bank Limited
 Premier Bank Limited
 Prime Bank Limited
 Pubali Bank Limited
 Shimanto Bank Ltd
 Southeast Bank Limited
 South Bangla Agriculture and Commerce Bank Limited
 Trust Bank Limited
 United Commercial Bank Ltd
 Uttara Bank Limited
 Bengal Commercial Bank Ltd
Islami Shariah Based PCBs[edit]
There are 10 Islami Shariah-based PCBs in Bangladesh and they execute banking activities
according to Islami Shariah-based principles i.e. Profit-Loss Sharing (PLS) mode.[1]
 Al-Arafah Islami Bank Limited
 EXIM Bank Limited
 First Security Islami Bank Limited
 ICB Islamic Bank Limited
 Islami Bank Bangladesh Limited
 Shahjalal Islami Bank Limited
 Social Islami Bank Limited
 Union Bank Ltd
 Standard Bank Limited
 Global Islamic Bank Ltd (former NRB Global Bank)
2. Non-scheduled banks: The banks which are established for special and definite objective and
operate under the acts that are enacted for meeting up those objectives, are termed as Non-
Scheduled Banks. These banks cannot perform all functions of scheduled banks.
Non-scheduled banks are licensed only for specific functions and objectives, and do not offer the
same range of services as scheduled banks. There are now 5 non-scheduled banks in Bangladesh.
 Ansar VDP Unnayan Bank
 Grameen Bank
 Jubilee Bank
 Karmashangosthan Bank
 Palli Sanchay Bank

Specialized financial institutions (semi formal sector):

 Bangladesh House Building Finance Corporation (BHBFC)

 Palli Karma Sahayak Foundation (PKSF)

Functions of Different financial Institutions:

Insurance Companies:
Functions of insurance are to spread the loss caused by a particular risk over several persons,
who are exposed to it and who agree to insure themselves against the risk.
The most important function of insurance is to spread the risk over a number of persons who are
insured against the risk, share the loss of each member of the society on the basis of the
probability of loss to their risk and provide security against losses to the insured.
The functions of insurance can be studied into two parts;
1. Primary Functions, and,
2. Secondary Functions.
Primary Functions of Insurance
1. Insurance provides certainty: Insurance provides certainty of payment at the
uncertainty of loss. The uncertainty of loss can be reduced by better planning and
administration. But the insurance relieves the person from such a difficult task.
Moreover, if the subject matters are not adequate, the self-provision may prove costlier. There
are different types of uncertainty in a risk.
The risk will occur or not, when will occur, how much loss will be there?
In other words, there is the uncertainty of happening of time and amount of loss. Insurance
removes all these uncertainties and the assured is given certainty of payment of loss.
The insurer charges the premium for providing the said certainty.
2. Insurance provides protection: The main function of insurance is to protect the probable
chances of loss. The time and amount of loss are uncertain and at the happening of risk, the
person will suffer the loss in the absence of insurance.
The insurance guarantees the payment of loss and thus protects the assured from sufferings. The
insurance cannot check the happening of risk but can provide for losses at the happening of the
risk.
3. Risk-Sharing The risk is uncertain, and therefore, the loss arising from the risk is also
uncertain.
When risk takes place, the loss is shared by all the persons who are exposed to the risk.
The risk-sharing in ancient times was done only at the time of damage or death; but today,
based on the probability of risk, (the share is obtained from every insured in the shape of
premium without which protection is not guaranteed by the insurer.

Secondary Functions of Insurance

Besides the above primary functions, the insurance works for the following functions:
4. Prevention of loss
The insurance joins hands with those institutions which ate engaged in preventing the losses of
the society because the reduction in loss causes the lesser payment to the assured arid so more
saving is possible which will assist in reducing the premium.
Lesser premium invites more business and more business causes lesser share to the assured.
So again premium is reduced to which will stimulate more business and more protection to the
masses.
Therefore, the insurance assists financially to the health organization, fire brigade, educational
institutions and other organizations which are engaged in preventing the losses of the masses
from death or damage.
5. It Provides Capital
The insurance provides capital to society. The accumulated funds are invested in the productive
channel.
The death of the capital of the society is minimized to a greater extent with the help of
investment in insurance. The industry, the business, and the individual are benefited by the
investment and loans of the insurers.
6. It Improves Efficiency
Insurance eliminates worries and miseries of losses at death and destruction of property.
The carefree person can devote his body and soul together for better achievement, it improves
not only his efficiency but the efficiencies of the masses are also advanced.
7. It helps Economic Progress
The insurance by protecting the society from huge losses of damage, destruction, and death,
provides an initiative to work hard for the betterment of the masses.
The next factor of economic progress, the capital, is also immensely provided by the masses. The
property, the valuable assets, the man, the machine and the society cannot lose much at the
disaster.