Definition of U.OL "Commercial Bank"
“Commercial banking” was defined in the previous edition of this book as the activity of a banking institution whose “primary business is accepting deposits, making loans, collecting commercial paper, and arranging the transfer of funds.” Under banking law from the adoption of the Glass-Steagall Act in the 1930s to the early 1980s, there was a clear demarcation between commercial banks and other financial institutions, such as investment banks, securities firms, and investors. commercial financial services conglomerates.
AH this is changing. The types of institutions that can participate in traditional commercial banking functions have expanded as a result of legislation giving additional powers to savings institutions. The types of activities carried out by commercial banks have expanded as a result of legislation at both the state and federal levels and as a result of court decisions dismantling parts of the wall erected by the Glass-Steagall Act to keep commercial banks isolated from securities trading risks. The explosion of “non-bank banks” has initiated a restructuring of the banking market into holding companies capable of offering a variety of financial services. In light of these developments, perhaps the most appropriate definition is that offered by a texi in English: “[B]Anks come in all shapes and sizes, with different name tags in different countries, often applied quite flexibly. Banks get most of their money from the difference between the interest rates paid to depositors and those charged to borrowers. “Commercial banks” are publicly traded and profit-oriented. They deal directly with the public, take deposits, make loans, and provide a variety of financial services, from currency exchange to investment advice. Most countries have settled for between four and ten; “but in the United States there are almost 15,000 due to” banking laws that have prevented banks from operating in more than one state, and in different types of businesses, ..
In addition to commercial banks, there are many specialized depository institutions that have been established to perform specialized functions. Savings institutions such as savings and loan associations and credit unions are important examples. In their early days, savings and loan associations were primarily engaged in providing home mortgages and offering passbook-type savings to consumers. With the enactment of the Depositary Institutions Monetary Deregulation and Control Act of 1980, savings entities gained greater authority to engage in commercial banking activities. There has been increased incorporation into the general banking market as a result of the restructuring caused by financial failures and the weakening of the condition of savings institutions in the 1980s, leading to changes in the law to encourage acquisition and merger of weak institutions with stronger financial institutions. institutions, including banks. To a large extent, savings institutions are subject to a regulatory regime similar to that of commercial banks and perform banking functions similar to those of commercial banks. Subsequent chapters discuss how savings fit into this regulatory scheme.
There are other financial companies specialized in the consumer sector. Credit unions may be organized under state and federal statutes with the power to maintain customer stock accounts against which drafts payable can be drawn in a manner similar to checks. There are also personal finance loan organizations licensed under the laws of various states that lend small amounts of money to consumers, often at specially regulated rates that are higher than the usual interest rates allowed. These organizations are not normally deposit-taking institutions, but operate with their own capital and credit. Banks often have their own small loan departments to make the same type of loans, and holding companies may have special consumer loan subsidiaries or affiliates.
Although fiduciary activities have become part of the business of many commercial banks, 1 this book does not discuss the laws that govern these fiduciary relationships and activities. Competition for funds has led some banks to offer investment accounts managed through their trust departments similar to those offered by mutual funds and other securities firms. Again, there are trust companies organized under state law that operate by accepting money for the purpose of investing when the beneficial interest on the funds remains with the original owner.
There are other types of banking functions and specialized banks: for example, reserve banks, which are actually bankers’ banks; investment banks, whose main activity is the subscription and negotiation of securities, and the provision of financial advice and assistance in corporate acquisitions and mergers; agricultural banks; foreign trade banks; and other specialized banks that have statutes to participate in particular types of business. In addition, the peculiarities of federal laws regulating bank holding companies have encouraged the proliferation of several financial institutions that have been incorporated as full-service banks, but limit their functions to activities such as consumer loans and credit card operations. credit.
Due to the diversity of functions of commercial banks and the variety of depository institutions involved, this book does not attempt a complete study of all banking activity. Rather, it emphasizes the basic regulatory structure that governs traditional commercial banking institutions and the business activities associated with accepting deposits, collecting commercial paper, making payments and transferring funds, and engaging in certain credit transactions.
As this introduction indicates, the laws and regulations governing commercial banking are numerous and complex. The various types of financial institutions involved in commercial banking activities correspond to the same activities. The Depositary Institutions Monetary Deregulation and Control Act of 1980 also gave savings institutions authorized by the Federal Board of Housing Loan Banks the authority to engage in fiduciary activities under certain conditions. 12 USC § 1464 (n) (1982).
Furthermore, the law governing commercial bank transactions is complex. The Uniform Commercial Code has brought a desirable uniformity to the law in many areas, but there are many special purpose statutes, often intended to provide special consumer protection, that must be considered when analyzing banking transactions. There is a growing body of federal laws that must be considered in conjunction with UCC state business law and common law. This book is intended to serve as an initial guide for the bank official involved in these commercial banking transactions and attorneys called upon to advise on banking matters. However, it is not a substitute for careful legal advice, and such assistance should be obtained because this book cannot cover all the details applicable in particular matters, especially at the regulatory level, or report on all local variations, changes and developments. developments. Furthermore, the facts of a particular situation will vary in a way that may introduce new legal problems or otherwise affect the legal analysis. Obtaining the advice of a competent attorney is essential.
