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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