Banking secrecy, alternately known as financial privacy, banking discretion, or bank safety, is a conditional agreement between a bank and its clients that all foregoing activities remain secure and private. While some banking institutions voluntarily impose banking secrecy institutionally, others operate in regions where the practice is mandated and protected. All banking secrecy standards prohibit the disclosure of client information to third parties without consent or an accepted criminal complaint. Additional privacy is provided to select clients via numbered bank accounts or underground bank vaults. Most associated with banking in Switzerland, banking secrecy is prevalent in Luxembourg, Hong Kong, Singapore and the Cayman Islands, among other off-shore banking institutions. Otherwise known as bank–client confidentiality or banker–client privilege, the practice was started by Italian merchants during the 1600s near Northern Italy. Geneva bankers established secrecy and through civil law in the French-speaking region during the 1700s.
Swiss banking secrecy was first codified with the Banking Act of 1934, thus making it a crime to disclose client information to third parties without their consent. The law, coupled with a stable Swiss currency and international neutrality, prompted large capital flight to private Swiss accounts. During the 1940s, numbered bank accounts were introduced creating an enduring principle of bank secrecy that continues to be considered one of the main aspects of private banking globally. Advances in financial cryptography could make it possible to use anonymous electronic money and anonymous digital bearer certificates for financial privacy and anonymous Internet banking, given enabling institutions and secure computer systems. Numbered bank accounts, used by Swiss banks and other offshore banks located in tax havens, have been accused by the international community of being a major instrument of the underground economy, facilitating tax evasion and money laundering. After Al Capone's 1931 condemnation for tax evasion, according to journalist Lucy Komisar: mobster Meyer Lansky took money from New Orleans slot machines and shifted it to accounts overseas.
The Swiss secrecy law two years assured him of G-man-proof-banking. He bought a Swiss bank and for years deposited his Havana casino take in Miami accounts wired the funds to Switzerland via a network of shell and holding companies and offshore accounts. Economist and Nobel Prize laureate Joseph Stiglitz, told Komisar: You ask why, if there's an important role for a regulated banking system, do you allow a non-regulated banking system to continue? It's in the interest of some of the moneyed interests to allow this to occur. It's not an accident. If you said the US, the UK, the major G7 banks will not deal with offshore bank centers that don't comply with G7 banks regulations, these banks could not exist, they only exist. Numbered bank accounts Safe deposit box Financial privacy laws in Sébastien. 2000. "The Origins of the Swiss Banking Secrecy Law and Its Repercussions for Swiss Federal Policy". The Business History Review. Pp. 237-266
Private banks are the banks owned by either the individual or a general partner with limited partner. Private banks are not incorporated. In any such case, the creditors can look to both the "entirety of the bank's assets" as well as the entirety of the sole-proprietor's/general-partners' assets; these banks have a long tradition in Switzerland, dating back to at least the Revocation of the Edict of Nantes. Private banks have a long tradition in the UK where C. Hoare & Co. has been in business since 1672. This list contains two types of banks: Unincorporated banks owned by either an individual or a general partner with limited partner. Incorporated banks specialized in wealth management for high-net-worth individuals. Compagnie Financière Edmond de Rothschild, founded in 1953. Hamburg, founded in 1798 Sal. Oppenheim, founded in 1789. LGT Bank, founded in 1920. Maduro & Curiel's Bank, founded in 1917 MeesPierson, founded in 1720: a member of ABN AMRO Bankia banca privada Bankinter banca privada BBVA gestión de patrimonios CaixaBank Banca Privada Santander Private Banking BNP Paribas Wealth Management Credit Suisse banca privada UBS Wealth Management, UBS Bank Banque privée Edmond de Rothschild, founded in 1923.
Basel, founded in 1787 Landolt & Cie, founded in 1780 Lombard Odier & Cie, founded in 1796 NBAD Private Bank SA, founded in 2007. London, founded in 1833 Brown Shipley, founded in 1810. Hoare & Co. London, founded in 1672 Coutts & Co. London, founded in 1692. Edinburgh, founded in 2015 Weatherbys, Established in 1770 as a bank to the horse racing industry, now based in Northamptonshire Brown Brothers Harriman & Co. New York City, founded in 1818Turner Private Company - TBH Private Banking, Naples, FL, founded 1992 Bank secrecy Family office Offshore bank Public bank Swiss bank Swiss Private Bankers Association
Cooperative banking is retail and commercial banking organized on a cooperative basis. Cooperative banking institutions lend money in most parts of the world. Cooperative banking, as discussed here, includes retail banking carried out by credit unions, mutual savings banks, building societies and cooperatives, as well as commercial banking services provided by mutual organizations to cooperative businesses. A 2013 report by ILO concluded that cooperative banks outperformed their competitors during the financial crisis of 2007-2008; the cooperative banking sector had 20% market share of the European banking sector, but accounted for only 7 per cent of all the write-downs and losses between the third quarter of 2007 and first quarter of 2011. Cooperative banks were over-represented in lending to small and medium-sized businesses in all of the 10 countries included in the report. Credit unions in the US had five times lower failure rate than other banks during the crisis and more than doubled lending to small businesses between 2008 - 2016, from $30 billion to $60 billion, while lending to small businesses overall during the same period declined by around $100 billion.
Public trust in credit unions stands at 60%, compared to 30% for big banks and small businesses are eighty percent less to be dissatisfied with a credit union than with a big bank. Cooperative banks are owned by their customers and follow the cooperative principle of one person, one vote. Co-operative banks are regulated under both banking and cooperative legislation, they provide services such as savings and loans to non-members as well as to members, some participate in the wholesale markets for bonds and equities. Many cooperative banks are traded on public stock markets, with the result that they are owned by non-members. Member control is diluted by these outside stakes, so they may be regarded as semi-cooperative. Cooperative banking systems are usually more integrated than credit union systems. Local branches of co-operative banks select their own boards of directors and manage their own operations, but most strategic decisions require approval from a central office. Credit unions retain strategic decision-making at a local level, though they share back-office functions, such as access to the global payments system, by federating.
Some cooperative banks are criticized for diluting their cooperative principles. Principles 2-4 of the "Statement on the Co-operative Identity" can be interpreted to require that members must control both the governance systems and capital of their cooperatives. A cooperative bank that raises capital on public stock markets creates a second class of shareholders who compete with the members for control. In some circumstances, the members may lose control; this means that the bank ceases to be a cooperative. Accepting deposits from non-members may lead to a dilution of member control. Credit unions have the purpose of promoting thrift, providing credit at reasonable rates, providing other financial services to its members, its members are required to share a common bond, such as locality, religion or profession, credit unions are funded by member deposits, avoid outside borrowing. They are the smaller form of cooperative banking institution. In some countries they are restricted to providing only unsecured personal loans, whereas in others, they can provide business loans to farmers, mortgages.
The special s providing Long Term Loans are called Land Development Banks, in the short, LDB. The history of LDB is quite old; the first LDB was started at Jhang in Punjab in 1920. This bank is based on Co-operative; the main objective of the LDBs are to promote the development of land and increase the agricultural production. The LDBs provide long-term finance to members directly through their branches. Building societies exist in Britain and several Commonwealth countries, they are similar to credit unions in organisation. However, rather than promoting thrift and offering unsecured and business loans, their purpose is to provide home mortgages for members. Borrowers and depositors are society members, setting policy and appointing directors on a one-member, one-vote basis. Building societies provide other retail banking services, such as current accounts, credit cards and personal loans. In the United Kingdom, regulations permit up to half of their lending to be funded by debt to non-members, allowing societies to access wholesale bond and money markets to fund mortgages.
The world's largest building society is Britain's Nationwide Building Society. Mutual savings banks and mutual savings and loan associations were common in the 19th and 20th centuries, but declined in number and market share in the late 20th century, becoming globally less significant than cooperative banks, building societies and credit unions. Trustee savings banks are similar to other savings banks, but they are not cooperatives, as they are controlled by trustees, rather than their depositors; the most important international associations of co-operative banks are the Brussels-based European Association of Co-operative Banks which has 28 European and non-European members, the Paris-based International Cooperative Banking Association, which has member institutions from around the world too. In Canada, cooperative banking is provided by credit unions; as of September 30, 2012, there were 357 credit unions and caisses populaires affiliated with Credit Union Central of Canada. They operated 1,761 branches across the country with 5.3 million members and $149.7 billion in assets.
The UNI movement started by Alphonse
Islamic banking and finance
Islamic banking or Islamic finance or sharia-compliant finance is banking or financing activity that complies with sharia and its practical application through the development of Islamic economics. Some of the modes of Islamic banking/finance include Mudarabah, Musharaka and Ijara. Sharia prohibits usury, defined as interest paid on all loans of money. Investment in businesses that provide goods or services considered contrary to Islamic principles is haraam; these prohibitions have been applied in varying degrees in Muslim countries/communities to prevent un-Islamic practices. In the late 20th century, as part of the revival of Islamic identity, a number of Islamic banks formed to apply these principles to private or semi-private commercial institutions within the Muslim community, their number and size has grown, so that by 2009, there were over 300 banks and 250 mutual funds around the world complying with Islamic principles, around $2 trillion was sharia-compliant by 2014. Sharia-compliant financial institutions represented 1% of total world assets, concentrated in the Gulf Cooperation Council countries and Malaysia.
Although Islamic banking still makes up only a fraction of the banking assets of Muslims, since its inception it has been growing faster than banking assets as a whole, is projected to continue to do so. The industry has been lauded for returning to the path of "divine guidance" in rejecting the "political and economic dominance" of the West, noted as the "most visible mark" of Islamic revivalism, its most enthusiastic advocates promise "no inflation, no unemployment, no exploitation and no poverty" once it is implemented. However, it has been criticized for failing to develop profit and loss sharing or more ethical modes of investment promised by early promoters, instead selling banking products that "comply with the formal requirements of Islamic law", but use "ruses and subterfuges to conceal interest", entail "higher costs, bigger risks" than conventional banks. Although Islamic finance contains many prohibitions—such as on consumption of alcohol, uncertainty, etc. -- the belief that "all forms of interest are riba and hence prohibited" is the idea upon which it is based.
The word "riba" means “excess or addition”, has been translated as "interest", "usury", "excess", "increase" or "addition". According to Islamic economists Choudhury and Malik, the elimination of interest followed a "gradual process" in early Islam, "culminating" with a "fully fledged Islamic economic system" under Caliph Umar. Other sources, do not agree, state that the giving and taking of interest continued in Muslim society "at times through the use of legal ruses more or less openly," including during the Ottoman Empire. In the late 19th century Islamic Modernists reacted to the rise of European power and influence and its colonization of Muslim countries by reconsidering the prohibition on interest and whether interest rates and insurance were not among the "preconditions for productive investment" in a functioning modern economy. Syed Ahmad Khan, argued for a differentiation between sinful riba "usury", which they saw as restricted to charges on lending for consumption, legitimate non-riba "interest", for lending for commercial investment.
However, in the 20th century, Islamic revivalists/Islamists/activists worked to define all interest as riba, to enjoin Muslims to lend and borrow at "Islamic Banks" that avoided fixed rates. By the 21st century this Islamic Banking movement had created "institutions of interest-free financial enterprises across the world”; the movement started with activists and scholars such as Anwar Qureshi,Naeem Siddiqui, Abul A'la Maududi, Muhammad Hamidullah, in the late 1940 and early 1950s. They believed commercial banks were a "necessary evil," and proposed a banking system based on the concept of Mudarabah, where shared profit on investment would replace interest. Further works devoted to the subject of interest-free banking were authored by Muhammad Uzair, Abdullah al-Araby, Mohammad Najatuallah Siddiqui, al-Najjar and Muhammad Baqir al-Sadr; the involvement of institutions and various conferences and studies on Islamic banking were instrumental in applying the application of theory to practice for the first interest-free banks.
At the First International Conference on Islamic Economics, "several hundred Muslim intellectuals, Shari'ah scholars and economists unequivocally declared... that all forms of interest" were riba. By 2004, the strength of this belief was demonstrated in the world's second largest Muslim country—Pakistan—when a minority member of the Pakistani parliament questioned it
Postal savings system
Postal savings systems provide depositors who do not have access to banks a safe and convenient method to save money. Many nations have operated banking systems involving post offices to promote saving money among the poor. In 1861, Great Britain became the first nation to offer such an arrangement, it was supported by Sir Rowland Hill, who advocated the penny post, William Ewart Gladstone Chancellor of the Exchequer, who saw it as a cheap way to finance the public debt. At the time, banks were in the cities and catered to wealthy customers. Rural citizens and the poor had no choice but to keep their funds on their persons; the original Post Office Savings Bank was limited to deposits of £30 per year with a maximum balance of £150. Interest was paid at the rate of 2.5 percent per annum on whole pounds in the account. The limits were raised to a maximum of £500 per year in deposits with no limit on the total amount. Within five years of the system's establishment, there were over 600,000 accounts and £8.2 million on deposit.
By 1927, there were twelve million accounts—one in four Britons—with £283 million on deposit. The British system first offered. In 1880, it became a retail outlet for government bonds, in 1916 introduced war savings certificates, which were renamed National Savings Certificates in 1920. In 1956, it launched a lottery bond, the Premium Bond, which became its most popular savings certificate. Post Office Savings Bank became National Savings Bank in 1969 renamed National Savings and Investments, an agency of HM Treasury. While continuing to offer National Savings services, the General Post Office, created the National Giro in 1968. Many other countries adopted such systems soon afterwards. Japan established a postal savings system in 1875 and the Netherlands government started a systems in 1881 under the name Rijkspostspaarbank, this was followed by many other countries over the next 50 years; the part of the 20th century saw a reversal where these systems were abolished or privatized. In Austria, the Österreichische Post used to own the Österreichische Postsparkasse.
This financial institute was bought and merged by the BAWAG in 2005. Brazil instituted a postal banking system in 2002, where the national postal service formed a partnership with the largest private bank in the country to provide financial services at post offices; the current partnership is with Bank of Brazil. In Bulgaria, the postal banking system was a subsidiary of Bulgarian Posts until 1991, when Bulgarian Postbank was created. In the years that followed, Bulgarian Postbank was privatized and the relationship between post offices and bank offices became weaker. Postal banking services ceased to be available in post offices in 2011. Canada Post offered banking services via its Post Office Savings Bank, created by the Post Office Act in April 1868, less than a year following the nation's confederation. A century the Post Office Savings Bank was shut down in 1968-69. Since at least the early 2010s, postal banking has been discussed and studied periodically, with postal unions backing the idea.
In the People's Republic of China, the Postal Savings Bank of China was split from China Post in 2007 and established as a state-owned limited company. It continues to provide banking services at post offices. In Finland, Postisäästöpankki was founded in 1887. In 1970 its name was shortened to Postipankki. In 1998 it was changed to a commercial bank named Leonia Bank, it was merged with an insurance company to form Sampo Group, the bank was renamed Sampo Bank. It had a few own offices, but post offices performed its banking operations until 2000. In 2007, Sampo Bank was sold to the Danish Danske Bank. France's La Poste, similar to the UK's Post Office, offer banking services called "La Banque Postale". Deutsche Postbank has a postal banking system. Deutsche Postbank was a subsidiary of Deutsche Post until 2008, when 30% of Deutsche Post's shares were sold to Deutsche Bank. Postal banking services are still available at all branches of Deutsche Postbank. Greek Postal Savings Bank provided banking services from post offices until 2013 when it was replaced by New TT Hellenic Postbank a subsidiary of Eurobank Group.
In 1919 the Postal Savings Bank notes were issued under the decree of the Revolutionary Governing Council of the Hungarian Soviet Republic by the Magyar Postatakarékpénztár. India post, operated by Government of India, under Indian Postal services providing small savings banking and financial services, including National Savings Certificates. Postal savings in Indonesia began with the establishment of the Netherlands Indian Post Office Savings Bank in 1897. During the Japanese occupation of Indonesia, it was replaced by the Savings Office and savings were encouraged by the military administration to support the Greater East Asia War; the Savings Office became the Post Office Savings Bank again after independence, before renamed into the current State Savings Bank, or Bank Tabungan Negara in 1963. Between 1963 and 1968, it became the Fifth Unit of Bank Negara Indonesia during the single-bank system, made to support the guided democracy. BTN offers a savings plan that allows its users to deposit in post offices.
In Italy, the Postal savings system is run by the Italian postal service company. Poste italiane run this service along with Cassa Depositi e Prestiti. In I
A merchant bank is a bank dealing in commercial loans and investment. In modern British usage it is the same as an investment bank. Merchant banks were the first modern banks and evolved from medieval merchants who traded in commodities cloth merchants. Merchant banks' purpose was to facilitate and/or finance production and trade of commodities, hence the name "merchant". Few banks today restrict their activities to such a narrow scope. In modern usage in the United States, the term additionally has taken on a more narrow meaning, refers to a financial institution providing capital to companies in the form of share ownership instead of loans. A merchant bank provides advisory on corporate matters to the firms in which they invest. Merchant banks were in fact the first modern banks, they emerged in the Middle Ages from the Italian grain and cloth merchants community and started to develop in the 11th century during the large European fair of St. Giles at the Champagne fairs; as the Lombardy merchants and bankers grew in stature based on the strength of the Lombard plains cereal crops, many displaced Jews fleeing Spanish persecution were attracted to the trade.
The Florentine merchant banking community was exceptionally active and propagated new finance practices all over Europe. Both Jews and Florentine merchants perfected ancient practices used in the Middle East trade routes and the Far East silk routes. Intended for the finance of long trading journeys, these methods were applied to finance the medieval "commercial revolution". In France during the 17th and 18th century, a merchant banker or marchand-banquier was not just considered a trader but received the status of being an entrepreneur par excellence. Merchant banks in the United Kingdom came into existence in the early 19th century, the oldest being Barings Bank; the Jews could not hold land in Italy, so they entered the great trading piazzas and halls of Lombardy, alongside the local traders, set up their benches to trade in crops. They had one great advantage over the locals. Christians were forbidden from any kind of lending at interest, since such activities were equated with the sin of usury.
The Jewish newcomers, on the other hand, could lend to farmers against crops in the field, a high-risk loan at what would have been considered usurious rates by the Church. In this way they could secure the grain-sale rights against the eventual harvest, they began to advance payment against the future delivery of grain shipped to distant ports. In both cases they made their profit from the present discount against the future price; this two-handed trade was time-consuming and soon there arose a class of merchants who were trading grain debt instead of grain. The buying of future crop and the trading of grain debt is analogous to the future contract market in modern finance; the court Jew performed underwriting functions. Financing took the form of a crop loan at the beginning of the growing season, which allowed a farmer to develop and manufacture his annual crop. Underwriting in the form of a crop, or commodity, insurance guaranteed the delivery of the crop to its buyer a merchant wholesaler.
In addition, traders performed the merchant function by making arrangements to supply the buyer of the crop through alternative sources—grain stores or alternate markets, for instance—in the event of crop failure. He could keep the farmer in business during a drought or other crop failure, through the issuance of a crop insurance against the hazard of failure of his crop. Merchant banking progressed from financing trade on one's own behalf to settling trades for others and to holding deposits for settlement of "billette" or notes written by the people who were still brokering the actual grain, and so the merchant's "benches" in the great grain markets became centers for holding money against a bill. These deposited funds were intended to be held for the settlement of grain trades, but were used for the bench's own trades in the meantime; the term bankrupt is a corruption of the Italian banca rotta, or broken bench, what happened when someone lost his traders' deposits. Being "broke" has the same connotation.
A sensible manner of discounting interest to the depositors against what could be earned by employing their money in the trade of the bench soon developed. Once again this developed what was an ancient method of financing long-distance transport of goods; the medieval Italian markets were disrupted by wars and in any case were limited by the fractured nature of the Italian states. And so the next generation of bankers arose from migrant Jewish merchants in the great wheat-growing areas of Germany and Poland. Many of these merchants were from the same families, part of the development of the banking process in Italy, they had links with family members who had, centuries before, fled Spain for both Italy and England. As non-agricultural wealth expanded, many families of goldsmiths gradually moved into banking; this course of events set the stage for the rise of Jewish family banking firms whose names still resonate today, such as Warburgs and Rothschilds. The rise of Protestantism, freed many European Christians from Rome's dictates a
An investment bank is a financial services company or corporate division that engages in advisory-based financial transactions on behalf of individuals and governments. Traditionally associated with corporate finance, such a bank might assist in raising financial capital by underwriting or acting as the client's agent in the issuance of securities. An investment bank may assist companies involved in mergers and acquisitions and provide ancillary services such as market making, trading of derivatives and equity securities, FICC services. Most investment banks maintain prime brokerage and asset management departments in conjunction with their investment research businesses; as an industry, it is broken up into the Bulge Bracket, Middle Market, boutique market. Unlike commercial banks and retail banks, investment banks do not take deposits. From the passage of Glass–Steagall Act in 1933 until its repeal in 1999 by the Gramm–Leach–Bliley Act, the United States maintained a separation between investment banking and commercial banks.
Other industrialized countries, including G7 countries, have not maintained such a separation. As part of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010, the Volcker Rule asserts some institutional separation of investment banking services from commercial banking. All investment banking activity is classed as either "sell side" or "buy side"; the "sell side" involves trading securities for cash or for other securities, or the promotion of securities. The "buy side" involves the provision of advice to institutions. Private equity funds, mutual funds, life insurance companies, unit trusts, hedge funds are the most common types of buy-side entities. An investment bank can be split into private and public functions with a Chinese wall separating the two to prevent information from crossing; the private areas of the bank deal with private insider information that may not be publicly disclosed, while the public areas, such as stock analysis, deal with public information. An advisor who provides investment banking services in the United States must be a licensed broker-dealer and subject to U.
S. Securities and Exchange Commission and Financial Industry Regulatory Authority regulation; the Dutch East India Company was the first company to issue bonds and shares of stock to the general public. It was the first publicly traded company, being the first company to be listed on an official stock exchange; the Dutch helped lay the foundations of the modern practice of investment banking. Investment banking has changed over the years, beginning as a partnership firm focused on underwriting security issuance, i.e. initial public offerings and secondary market offerings and mergers and acquisitions, evolving into a "full-service" range including securities research, proprietary trading, investment management. In the 21st century, the SEC filings of the major independent investment banks such as Goldman Sachs and Morgan Stanley reflect three product segments: investment banking, asset management, trading and principal investments. In the United States, commercial banking and investment banking were separated by the Glass–Steagall Act, repealed in 1999.
The repeal led to more "universal banks" offering an greater range of services. Many large commercial banks have therefore developed investment banking divisions through acquisitions and hiring. Notable large banks with significant investment banks include JPMorgan Chase, Bank of America, Credit Suisse, Deutsche Bank, UBS, Barclays. After the financial crisis of 2007–08 and the subsequent passage of the Dodd-Frank Act of 2010, regulations have limited certain investment banking operations, notably with the Volcker Rule's restrictions on proprietary trading; the traditional service of underwriting security issues has declined as a percentage of revenue. As far back as 1960, 70% of Merrill Lynch's revenue was derived from transaction commissions while "traditional investment banking" services accounted for 5%. However, Merrill Lynch was a "retail-focused" firm with a large brokerage network. Investment banking is split into front office, middle office, back office activities. While large service investment banks offer all lines of business, both "sell side" and "buy side", smaller sell-side investment firms such as boutique investment banks and small broker-dealers focus on investment banking and sales/trading/research, respectively.
Inns issuing securities and investors buying securities. For corporations, investment bankers offer information on when and how to place their securities on the open market, an activity important to an investment bank's reputation. Therefore, investment bankers play a important role in issuing new security offerings. Front office is described as a revenue-generating role. There are two main areas within front office: investment banking and markets Investment banking involves advising organizations on mergers and acquisitions, as well as a wide array of capital raising strategies. Markets is divided into "sales and trading", "research". Corporate finance is the aspect of investment banks, which involves helping customers raise funds in capital markets and giving advice on mergers and acquisitions