Specialized banks - SS2 Commerce Lesson Note

Developed Banks:

Developed banks, also known as commercial banks, are financial institutions that offer a range of services to individuals, businesses, and governments. They play a crucial role in the economy by facilitating various financial transactions and providing services such as savings accounts, loans, credit cards, and investments. Developed banks are often the primary institutions where people deposit their money and seek financial assistance.

Functions of Developed Banks:

·         Accepting deposits: Developed banks accept deposits from individuals, businesses, and organizations, providing a safe place for them to store their money.

·         Extending loans: They offer loans and credit facilities to individuals and businesses for various purposes such as home loans, business loans, and personal loans.

·         Providing payment services: Developed banks facilitate payment transactions, including issuing debit and credit cards, processing electronic fund transfers, and providing checkbooks.

·         Offering investment services: They provide investment options such as mutual funds, fixed deposits, and retirement accounts to help individuals grow their wealth.

·         Currency exchange: Developed banks offer currency exchange services, allowing customers to convert one currency into another.

·         Providing financial advice: Many developed banks offer financial advisory services to help customers make informed decisions regarding investments, savings, and financial planning.

Merchant Banks:

Merchant banks are financial institutions that specialize in providing financial services to corporations, governments, and high-net-worth individuals. They primarily focus on investment banking activities and provide specialized services related to capital raising, corporate restructuring, mergers and acquisitions, and underwriting securities issuances.

Functions of Merchant Banks:

·         Corporate finance: Merchant banks assist corporations in raising capital for expansion or investment purposes by underwriting new securities issuances or helping with private placements.

·         Mergers and acquisitions: They provide advisory services for mergers, acquisitions, and corporate restructuring, helping companies navigate complex financial transactions.

·         Financial risk management: Merchant banks help clients manage financial risks associated with foreign exchange, interest rates, commodities, and other financial derivatives.

·         Asset management: They may offer asset management services, helping clients manage their investment portfolios and providing investment advice.

·         Private equity and venture capital: Some merchant banks engage in private equity and venture capital activities, investing in companies in exchange for ownership stakes.