The financial system consist of financial institutions, markets instruments and rules that facilitate and regulate the flow of fund in the economy. A bank is a financial institution in which money and other valuables are kept for safe keeping and loans are given out to the people.
Electonic banking also known as Electronic Fund Transfer uses computers and electonic technologies as a substitute for cheques and other paper transactions. It simply means twenty-four access to cash through an Automated Teller Machine or direct deposit into accounts.
Electronic banking provides the following services:
1. Automated Teller Machine: These are electonic terminals that let a customer teansact business anytime. To withdraw or transfer fund, a card will be inserted and pin number entered.
2. Direct deposit: This allows the customer to authorize specific deposit such as social security cheques to his account on a regular basis. Also, direct withdraw like insurance premium may be authorized.
3. Pay by phone system: Through this system, a customer can call his bank with instructions to pay certain bills or to transfer between accounts.
4. Personal computer banking: A customer may use his computer to view the balance of his account and request for transfer between accounts. He can also pay bills electronically.
5. Point of sales transfer: A debit card can be used for purchases. It transfers money quickly from the bank account to the stores account.
ORIGIN OF THE BANK
The first bank called the bank of Venice was established in Venice, Italy in 1157. But modern banking began with the English Goldsmiths. It was such that they had to take special precaution against theft of gold and jewelries. In the 17th century,they began to accept money and other valuables from metchants and others for safe keeping. As evidence of receiving valuables, they would issue receipts. Later, they started lending this money out to others for interest. Banking now later became a separate business on its own. In Nigeria, First Bank of Nigeria was established in 1894. The Central Bank of Nigeria started operations in 1959. The number of Banks in Nigeria had grown over the years. There was an upsurge in d number of Bannjs operating in Nigeria in the 1980's and the 1990's. It rose to about 84 Banks but recently the federal government of Nigeria introduced a number of reforms in the banking sector. The era witnessed the Introduction of Universal Banking System. The banking system is now highly competitive. Innovative and aggressive banking strategies have been introduced. Banks have been repositioned to meet the financial challenge of the future.
TYPES OF BANKS
1. Commercial Bank
2. Central Bank
3. Merchant Bank
4. Savings Bank
5. Agricultural Bank
6. Industrial Bank
These are limited liability financial institutions which perform all kinds of banking functions such as acceptance of deposit, safekeeping of valuables and advancing of loans to customers purposely to make profit.
FUNCTIONS OF COMMERCIAL BANK
1. Agent of payment: commercial banks can act as agent of payment on behalf of their customers
2. Safe keeping of valuables: commercial bank is to keep valuables items such as original copy of certificate, will and jewelries
3. Commercial bank accepts deposit from the public for safekeeping
4. Lending of money to customer: customer's deposit are pooled together and given out as loans and i.e overdraft with interest.
5. Insurance of bank statement.
6. Foreign exchange transactions.
7. Provision of financial advice to customer.
Central Bank is the Apex bank in a country which is established to keep a country's financial system under control and supervision. It is the bank to keep the government and commercial Banks. The Central Bank controls the reserve, issue of currency and regulate the supply of credit.
FUNCTIONS OF CENTRAL BANK
1. Issuance of currency: this is the only institution empowered by law to issue currency that sound in as medium of exchange in a country. it has the Monopoly of printing and regulating the currency in circulation
2 . Lender-of-last-resort: the commercial banks and other financial institution can go to Central Bank to raise loan when they are short of money or have financial problems.
3. Bankers bank: it is the bank to other banks the Central Bank kids account for commercial and other financial institutions
4. Banker and advisor to the Federal Government: it serve as the bankers and financial adviser to the government. it's receive all proceeds of temptations and make payments on behalf of the government.
5. Provision of monetary guidelines: it is concerned with the provision of monetary guidelines for the financial systems. The Central Bank controls the conduct of affairs of the financial intermediaries under it.
6. Control and management of foreign exchange reserve: foreign exchange management entails the acquisition and allocation of foreign exchange reserve. The major aim is to control the value of domestic currency relative to the values of key currencies.
7. Management of national debt: it manages the national debt on behalf of the government. It should end at proper timing and issuing of government bonds, stabilizing their prices and minimising the cost of servicing public depth
8. Controller of credit creation :the Central Bank controls the creation of credit in order to control inflationary and deflationary pressures within the economy. This will influence the pattern of investment and production in the country for this purpose various instruments like open market operation and selective credit controls can be adopted
CENTRAL BANK MONETARY POLICY
There are instruments or weapons adopted by the Central Bank to regulate and control the commercial Banks .
1. Open market operation:this is the buying and selling of securities from and to the commercial banks in order to reduce or increase the volume of money in circulation.
2. Bank rate or discount rate: this is the minimum rate at which the Central Bank is prepared to wear discount bills of exchange and government securities held by the commercial Banks
3. Cash ratio or liquidity ratio: the central Bank requires all commercial Banks to keep certain percentage of their deposits as reserves.
4. Moral suasion : this policy takes the form of an appeal,prostration of suggestion to the bank to purchase satin lending policies and to the commercial Bank to pursue certain lending policy and to exercise caution
5. Given special directives : these are special instructions given to financial institution as to which direction they are lending policies should follow.
6. Special deposit: this is a compulsory deposit demanded by Central Bank from the commercial banks over and above the Central Bank, which is pegged, as a percentage of total deposit in order to reduce the lending activities.