Bank Operation
BNKG 1303
Session 12 - Specialized Products and Services
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It is important to understand that not all banks will offer all or even any of these 'Specialized Products and Services'. The decision to offer the services covered in this section are based on a number of factors - including the size of the organization - the marketplace it serves and competitors and their services. Most of these services are expensive initially to offer and make take years to make profitable. They also require an expertise - both education and experience - that not every bank can afford. Further - If your bank offer's these services - then you may be quite familiar with them - if your bank doesn't offer - you might well be less well informed. Banks chose to offer - or not offer - these products based on their decisions that matches additional bank profits and client services as an offset to the additional risk inherent to these products. |
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| Trust Departments | As the name implies requires TRUST. Trusts - are a legal entity that is formed for some particular purpose that the Grantor (creator of the trust) has in mind - that he/she can't or doesn't want to handle. They place the responsibility of administering the trust on the Bank (not an individual) but the Bank - because they trust the Bank. |
| This is not the place to get deeply involved with Trusts - but suffice it to say that they can involve a persons life work - an estate or more than one - and can be valued at hundreds of millions of dollars or more. It is clear to see, that because of the amount of money involved with a trust - that the administration of that trust is an area that requires the highest of standards - and even then - could leave the bank open for possible litigation. | |
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Trust managers have a FIDUCIARY responsibility to the bank's clients. A fiduciary is a person or institution in whom you have placed trust and confidence. In this case it is the bank Trust officers - whom the client entrusts with their life's estate. The Trust officers - are not only responsible for maintaining the clients estates - they are also responsible for the growth of those assets. This often involves investing in the Stock Market. This is a wonderful - and long term way of providing security against inflation. On the other hand - since there is no guarantee that any investment will make money - there is a chance of loss - and perhaps great loss. Since the Trust officers are responsible for making these investments - they are also for the loss that might occur. Therefor it is very important that they make 'prudent' investments - remembering that they are not investing their own money - but that of the bank's clients'. |
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| Brokerage Services | Brokerage - is the function of acting as a client's agent for the purchase and sale of investment products. Investment products include Stocks, Bonds, Mutual Funds, REIT (Real Estate Investment Trusts) - and other investment products. |
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Prior to the passage of Gramm-Leach-Bliley, banks were prohibited from offering investment products. There were a few financial institutions that made - semi-legal - offerings of investment products and many of those investors believed (or were lead to believe) that as products of the bank these 'accounts' were insured by the FDIC. Since they were investments - they were NOT insured by the FDIC - and those people lost all of their money. The Gramm-Leach-Bliley Act - allows for banks to offer Brokerage Services - but ONLY through very specific guidelines and following very detailed regulations. |
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| Financial Planning is the key to successful use of brokerage services. The broker is as much responsible for assisting the client with their financial planning as with the actual purchase of investment products. | |
| As with the providing of Trust Services - and the use of the Market Investments - Brokerage Services also provide the bank with the opportunity to be held liable for losses to their clients investments accounts. | |
| Safe Deposit |
This is a service that is offered by most banks - but not necessarily at all locations (particularly branch offices. The liability associated with Safe Deposit Boxes is one of the more challenging products that a bank can offer - in that - unlike ALL other services - the bank and/or bank employee has absolutely NO idea of the value of the objects stored in the Safe Deposit Box. Further, since there is no FDIC/NCUA insurance for what is stored - any loss might well cause great loss - or lengthy litigation. If there is something missing from a Safe Deposit box - or if even a boxholder alleges a loss - the bank must be able to prove that their procedures would make it impossible for someone to gain access to the clients box. It becomes an issue of 'my word - against the bank's word'. |
| International |
Most of us are fairly familiar with the rules and regulations - and customs of business in the United States. To often, however, we have the mistaken impression that those same rules apply to other nations. Well, they DON'T. Regulations and customs of other countries are NOT based on ours. For example - the Constitution of the United States provides, among other things, that a person is "innocent of a crime until proven guilty - and that guilt must be proven beyond a shadow of a doubt". This is NOT true of many other countries - where the accused is 'guilty - unless they can prove themselves innocent - and often the guilt is based on a majority vote. |
| Insurance Products | As with other of these products assist the bank in meeting customer needs and providing for additonal 'one stop' shopping for their customers. |
| It is very important to know understand that NONE of the products or services listed above are subject to FDIC/NCUA insurance of accounts. The bank accepts tremendous additional financial liability by offering these products - since they alone are responsible. Additionally, the actions of individual employees in these areas - may place them in a position of personal financial and legal liabilities. | |
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Session Internet Resources
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| FCIC - Buying Life Insurance | |
| Trusts | |
| Comptroller of the Currency | |
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Read through the text's discussion of a ''Trust" - and the relationship of the four parts of the trust |
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| Make sure that you understand the concepts of the 'Prudent Person Principle' and 'Fiduciary Responsibility'. Both of these concepts are extremely important in the operation of many bank services - but particularly those of Trust and Brokerage. | |
| Consider the offering of Safe Deposit Boxes. What liabilities does a bank have? Unlike a checking or savings - or even investment accounts - the bank has NO idea of the value of what the customer stores inside their box. |
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There is NO specific assignment for this session. |
| For each session, you must answer completely ONE of the questions provided, and email your response to the instructor by midnight the Friday of the session week. While answers should be developed fully, it is anticipated that each answer should be approximately one page in length. |
| Discuss the relationship of the parties of a trust - including the liabilities of each to the other. |
| Discuss the services offered by your bank's Trust Department. |
| Discuss the things that you would want to consider - if you were responsible for making the decision for your bank to begin offering any of the services refered to in this chapter. |