Corporate customers

In the market for corporate customers, the changing environment has also manifested itself primarily in the form of increased competition, brought about again by deregulation. The deregulation of the capital markets has enabled corporate borrowers to raise funds from sources other than banks, while in­creased competition has extended the range of alternative means of finance available from the capital market and has lowered the cost of such finance relative to bank finance.

The response by the retail banks to the increased competition for corporate customers has taken a number of forms:

- Improvement of existing facilities for corporate customers. Given that the cost of funds lies largely outside a bank's control, however, their ability to improve existing facilities is necessarily limited and is concentrated on increasing the flexibility offered to such customers.

- Greater involvement in the securities markets. For some retail banks this has meant acquiring firms operating as brokers or market-makers within the capital markets, but they have also become increasingly involved in merchant and investment banking via their subsidiaries and directly in­volved in, for example, managing issues of commercial paper.

- Development of particular segments of the market for corporate custom­ers, and in this respect small- and medium-sized businesses have become the focus of attention, since the ability of such businesses to take advan­tage of deregulation and increased competition within the capital market is limited by their size.

For both the market for personal customers and that for corporate customers. an additional response to the changing environment has been a movement away from their financial intermediary services towards the whole range of non-intermediary financial services. These activities do nut require the banks to obtain and then onlend funds, allowing the banks to benefit from the interest margin: rather, they generate lees or commissions for the bank con­cerned and to some extent are subject to less competition. Many of these activities enable the banks to make more intensive use of their branch net­works and hence to lower average costs. They include insurance broking, unit trust operations, stockbroking and estate agency operations. They are sometimes called 'non-funds based products'.

1. Examine the importance of the Building Societies Act 1986 for UK retail banks.

2. It is sometimes suggested that the general public have become more sophisti­cated in their financial requirements. How might this fact have affected retail banking operations?

3. Discuss some of the improvements which retail banks have made to their facilities in recent years in order lo enhance their position in attracting personal customers.

4. List some of the ways in which retail banks have attempted to improve their facilities for corporate customers in recent years.

5. For what reasons might retail banks move into the provision of non-intermedia­tion financial services?

XIX. Complete the text using these words:

cash dispensers current account investment advice overdraft

cheque deposit account loan pension

credit card foreign currency mortgage standing order

My salary is paid directly into a low-interest (1) ______. I can withdraw money from automatic (2) ______ with a cashcard, so 1 hardly ever actually go into a bank. I pay regular, monthly bills by way of a (3) _____: the bank pays them according to my instructions, and debits my account.

I pay irregular bills by (4) _____ - Nearly everyone I know in Britain has a chequebook, but when I lived on the Continent, I found that people hardly used them. They often paid cash, or paid bills at a post office with a paying-in slip.

I also have a (5) _____ which is useful for ordering things by post or on the telephone, and for travelling worldwide. I also use it in shops and restaurants, but try not to spend more than I can pay when the bill comes a month later, as this is a very expensive way of borrowing money. The annual interest is exorbitant - well over 20%.

I used to have a (6) ______ in a building society which paid higher interest than the current account at the bank, but had restrictions as to how and when I could withdraw my money. But then we bought a flat. I got a 90% (7) ______ from the building society: i.e. we had to pay a deposit of 10% with our own savings.

That is why I have no more money and no more deposit account. In fact I have arranged an (8) _______ with the bank, which means I can occasionally withdraw more money than is actually in my account. Interest is calculated daily. Last year I asked the bank for a (9) _______ to buy a car. I (only!) wanted two months salary, but they refused. Since I don't like the high interest rates that the garage's hire purchase people charge. I bought a cheap second-hand car instead.

I always use the hank to buy (10) ______ when 1 go abroad, because their rates are better than the bureaux de change. I don't like travellers' cheques, and I've never had my money stolen - yet.

My bank is also always trying to sell me a private (11) ______ plan, for when I retire, but I'm not interested. They also keep offering me (12) ______ about shares, bonds, unit trusts, mutual funds, and so on. They don't seem to realize that if 1 could afford to buy all these things, I wouldn't need an overdraft.

XX. Make an overview of the following texts:

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