Mohammed Sohail Mustafa 1

Chapter: 03
The Organization &
Structure of Banks &
Their Industry
Mohammed Sohail Mustafa 2
Organizational Forms of Banks
The arrangement of personnel & departments
within a bank to produce & deliver its services. A
bank with heavy involvement in consumer loans
& deposits is called Retail Bank. The bank
which concentrates mainly upon serving
commercial customers & making large corporate
loans is called Wholesale I nstitution.
Mohammed Sohail Mustafa 3
Differences between Large & Small Banks
Small Banks: The service operations of small banks are
usually monitored by a Cashier & Auditor working in the
accounting division & by Vice-Presidents heading up the
banks loan-fund raising, marketing & trust departments.
These officers reports to the Senior Executives of the
bank, consisting of the board Chairman; the President,
who usually runs the bank from day to day; & Senior Vice
Presidents, who are responsible for long-range planning &
for assisting heads of the various departments in solving
their most pressing problems. Senior management, in turn,
reports periodically to the members of the Board of
Directors that is selected by the Stockholders.
Mohammed Sohail Mustafa 4
Differences between Large & Small Banks---Contd
Large Banks: This bank is owned & controlled
by a holding company whose stockholders elect a
Board of Directors to oversee the bank & nonbank
firms allied with the same holding company. The
largest institutions serve many different markets
with many different services, they are better
diversified both geographically & product line
to withstand the risks of a fluctuating economy.
Mohammed Sohail Mustafa 5
Unit Banking Organization
The oldest kinds of banking, offer all of their services from
one office, though a small number of services [taking
deposits, cashing checks ] may be offered from limited-
service facilities such as:
Drive-in windows.
Automated teller machine (ATM)
Retail store point-of-sale terminals.

Reasons for the growth of Unit banking system are:
Rapid formation of new banks.
On-line banking.
Megamergers.
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Branch Banking
It serves a rapidly growing region & finds itself
under pressure either to follow its business &
household customers as they move into new areas
or lose them to more conveniently located
competitors.
Senior management of a branch banking
organization is usually located at home office,
though each full-service branch has its own
management team with limited authority to make
decisions on customer loan applications & other
facets of daily operations.
Mohammed Sohail Mustafa 7
Branch Banking----Contd

Branch Banking System
Full-Service
Branch
Office
Home or
Head
Office
Full-Service
Branch
Office
Drive-in
Window
ATM or
Point-of-sale
Terminals in
Store
Electronic
Communications
networks
Mohammed Sohail Mustafa 8
Branch Banking----Contd
Reasons for the growth of Branch Banking:
Shifting of population from cities to suburban communities.
Bank failures causes healthier banks to take over sick ones &
convert them into branch offices.
Growth of business increases the credit needs of rapidly growing
corporations.
Advantages of Branch Banking/Argument for Branch
Banking:
Greater operating efficiency.
Increases the availability & convenience of services to customers.
Stimulate faster economic growth.
Fewer bank failures because a branch bank is less dependent on the
volume of business from single industry or local market area.
Mohammed Sohail Mustafa 9
Branch Banking----Contd
Argument Against Branch Banking:
Drives out small competitors.
Leaving the customer with fewer sources of banking
services.
Leads to higher service fees.
Drains scarce capital away from local communities
toward the largest cities.
Slowing local economic development.
Loans & deposits interest rates increases through
mergers.
Mohammed Sohail Mustafa 10
Bank Holding Company Organizations
A bank holding company is simply a corporation chartered
for the purpose of holding the stock of at least one bank.
Any company has control over a bank or over any
company if
(A)The company directly or indirectly or acting through one
or more other persons owns, controls, or has power to vote
25 per centum or more of any class of voting securities of
the bank or company;
(B)The company controls in any manner the election of a
majority of the directors or trustees of the bank or
company; or
(C)The Board determines, after notice and opportunity for
hearing, that the company directly or indirectly exercises a
controlling influence over the management or policies of
the bank or company.

Mohammed Sohail Mustafa 11
Acquisition of bank shares or Assets

It shall be unlawful, except with the prior approval of the Board,
1. For any action to be taken that causes any company to
become a bank holding company;
2. For any action to be taken that causes a bank to become a
subsidiary of a bank holding company;
3. For any bank holding company to acquire direct or
indirect ownership or control of any voting shares of any
bank if, after such acquisition, such company will
directly or indirectly own or control more than 5 per
centum of the voting shares of such bank;
4. For any bank holding company or subsidiary thereof,
other than a bank, to acquire all or substantially all of the
assets of a bank; or
5. For any bank holding company to merge or consolidate
with any other bank holding company.
Mohammed Sohail Mustafa 12
Networking
Banks communicating through electronic systems
to collect & move funds. The most familiar
examples are networks of Automated Teller
Machine (ATM), such as CIRRUS, PULSE,
EXPRESS CASH, in which customers holding
credit & debit cards issued by one bank in the
network can carry out financial transactions
through any ATM belonging to the same network,
no matters which bank owns the particular
machine being used.
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A Typical Computer Network Involving POS
Terminals & ATMs

POS Terminals
In Stores
CPU
(Account
Verification)
Network
Switching Units
(sending transaction
Information to the
Correct banks)
Computer for
Bank A
Computer for
Bank B
Computer for
Bank C
ATM in
Stores
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Advantages of Network-Centric Applications
Secure identification: Customers and vendors alike
require some means of certifying the identities of parties in a
proposed transaction. The technology of digital signatures,
or secure identification certificates, has evolved to meet this
need.
Document delivery :Exporters and importers are
becoming less reliant on traditional banking services, but do
need other services such as electronic documentation
delivery. The Bolero study, organized by a consortium of
international trading organizations, shippers and banks,
found that the increased preference for shipping on open
account -- a kind of barter system in which transactions are
netted directly among the trading partners -- requires
improved electronic documentation.
Mohammed Sohail Mustafa 15
Advantages of Network-Centric Applications---Comtd
Payables Outsourcing: Expensive audit and
control procedures are typically required only for
large payments, which constitute only a small
percentage of transaction volume. As a result,
companies are willing to outsource their accounts
payable function to companies such as Blizzard
Processing.
Data Scrubbing: Corporate cash management
customers will want to move forward with
electronic bill presentment on outbound billing
and electronic payment receipt on the inbound
side.
Mohammed Sohail Mustafa 16
Advantages of Network-Centric Applications---Comtd
E-registers and Wallets: Organizations such as
CyberCash currently give away electronic wallets, which
function as record keepers and communicators for
electronic payments. Going forward, CyberCash wants
banks to brand electronic wallets with their own names and
then distribute them to customers.
Search Services: Banks need transaction-capable Web
sites that can facilitate core banking services. Then they
need channel partners that can direct traffic their way. And
finally, they need content that makes the Web experience
worthwhile. One form of content is search and selection.
Barclays Bank is demonstrating how this can work through
its Barclays Square trading station.
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Foreign Bank penetration of Domestic Market
Representative Offices: Facilities operated in a
different region or nation from a banks home
office that provide links back to the home office.
Agency Offices: Offices that provide limited
services to customers in distant markets, such as
credit & cash management services.
Full-Service Branches: Offices that provide the
same full menu of services as a banks home
office.
Shell Branches: Special offshore facilities set up
to raise new funds & avoid some regulations.
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Reasons for the Rapid Growth of Foreign Bank
Activities
1. The financing of exports from the home country to host
country.
2. Providing services to foreign nationals who have come
to study or work.
3. Tapping the Money Market for liquid funds.
4. Assisting with the flow of foreign capital into the most
promising local investments.
5. Avoiding regulatory restrictions on banking in their
home countries by entering the more open local market.
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Foreign Banks in Bangladesh
1. American Express Bank Ltd.
2. Citibank N.A
3. Commercial Bank of Ceylon Limited.
4. Habib Bank Ltd.
5. National Bank of Pakistan
6. Shamil Bank of Bahrain E.C.
7. Standard Chartered Bank Ltd.
8. State Bank of India
9. The Hong Kong and Shanghai Banking Cor.
Ltd.(HSBC)
10. Woori Bank