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Classification of Banks

Classification of Banks

• Money center banks

• Commercial banks
• Deposit Money banks
• Merchant / Investment banks
• Specialized banks vs Universal banks
Money centered banks
• These are the large multinational banks based at major
money centres like Chicago, NY, Paris, London, Frankfurt,
Tokyo and Zurich, with a worldwide network of branches,
involved in major international financial transactions, and
providing a range of banking services normally out of reach
of a local bank.

• They are similar in structure to a common bank, but its

borrowing and lending activities are with governments,
large corporations and regular banks.

• These types of financial institutions do not borrow from or

lend to consumers.
Commercial banks
• Commercial banking consists of the mainline banking
activities carried out by commercial banks, licensed,
chartered and organized under the banking law such
as scheduled banks in Pakistan, who are closely
monitored , supervised and regulated by the central
bank, the SBP.
Activities of the commercial banks
• Accept deposits mobilization through a branch
• Giving business loans
• Bank drafts, bank cheques
• Trade financing
• Lending money by over drafts
• Portfolio investments
• In many countries they are allowed to undertake the
activities of IB (Security market operations) hence
blurring the distinction between CB and other types
of banking activities.
Deposit Money banks
• Are those banks allowed to take deposits.

• The largest part of deposits are held by DMB and they

are central part of the system of monetary control
regarding growth of money , credit growth,
effectiveness of liquidity and reserve requirement
calibrated on the deposit base.

• Since the control of aggregate monetary magnitude is

primarily conducted through deposit money banks,
their operations are critical to the success or failure of
monetary policies.
Merchant / Investment banks
• The main business of IB is
• to provide LT finance to investors,
• equity contribution,
• underwriting of new shares/ IPOs,
• advising the customer on investments or
• managing investments on behalf of its customers.
Specialized banks vs Universal banks
• Universal Banks: are banks which offer full range
of services of a commercial bank and IB; mostly
large European banks.

• Société Générale of France,

• HSBC and RBS of the United Kingdom,
• Deutsche Bank of Germany, and
• UBS and Credit Suisse of Switzerland.
Specialised banks
• These are FDIs established to provide credit facilities,
assistance and advice to the clients in a designated sector.
• Such specialization over time provides a richness of
experience and in-depth knowledge of the sector that is
difficult for a client to obtain elsewhere.

• Such institutions are mostly govt owned or could also be

sponsored through a number of privately owned IBs.

• These institutions perform lending functions but may not

engage in routine commercial banking activities.
Islamic banks
Financial Institutions in Pakistan
• Banks,
• DFIs,
• Investment Banks,
• Leasing Companies,
• Modaraba Companies,
• Housing Finance,
• Mutual Funds,
• Insurance Companies,
• Exchange Companies and
• Venture Capital.
• All Banks
- Public Sector Banks
- Private Sector Banks
- Specialized Banks
- Foreign Banks