Part II. Banking

UNIT 5

General information

Read and translate Text 1

TEXT 1

Banking Basics

A good way to understand how banks work is to imagine starting your own bank. The first thing you need to do is put up some of your own money. You won’t receive a banking license unless you have your own capital at risk.

Let’s assume you raise $6 million in cash with help from other investors. That will be the bank’s initial equity, the owner’s stake. Next you obtain a charter, rent a building, furnish it with all the necessary equipment, hire and train a staff, and open your doors for business.

You’ll need to deposit some of your initial stake at the Fed. Those funds will be used to clear checks written by your own depositors. You’ll also need to keep enough cash in the vault to meet the demand for withdrawals by your depositors. Let's assume initial expenses of $1.2 million. That leaves $4.8 million, of which you allocate $2 million to vault cash and $2.8 million to your Fed account.

Managing Loans and Other Investments

As your business develops, some customers will deposit their own money to open checking accounts. Others will invest in your savings accounts and certificates of deposit (term loans) which must pay a competitive interest rate. Still others will seek loans from the bank. It is up to you to determine whether prospective borrowers are good credit risks, and will be able to pay the interest charges and return the principal on the specified date.

Accounting Needs

In managing your bank, you will need an accounting system to determine how your decisions are likely to affect the bank’s profitability. The most important account is the balance sheet. This shows at any given moment, the bank’s assets (what it owns), its liabilities (what it owes to others), and its net worth (what belongs to the owners). Net worth, or equity, is equal to assets minus liabilities. Your equity should remain positive and preferably growing. If it ever gets too low relative to total assets, your regulator may close the bank.

If your bank does well, the balance sheet will expand with new assets and liabilities. The equity should also increase, assuming you retain some of the profits in the bank rather than pay them all out as dividends to the owners.

(1828 symbols)

Vocabulary list:_________________________________________________

equity – собственный капитал

the owner’s stake – доля собственника

charter - чартер (документ на право ведения операций)

clear checks – осуществлять клиринг чеков

withdrawal – снятие денег

expenses - расходы

allocate – размещать, распределять

term loans – срочные займы

competitive – конкурентоспособный

credit risks – кредитный риск, вероятность невыплаты кредита в срок

interest charges – процент по займам, расходы по займам

principal – основная сумма

accounting system - система учёта и отчётности; (автоматизированная) система бухгалтерского учёта

balance sheet - баланс (отчёт об активах и пассивах предприятия)

net worth – чистая стоимость

assets and liabilities – активы и пассивы

total assets - сумма баланса, общая стоимость имущества

Vocabulary Section

Exercise I. Find in the Text the Russian for:

a good way; put up your own money; have capital at risk; the bank’s initial equity; the owner’s stake; hire and train a staff; initial stake; keep enough cash in the vault; meet the demand for withdrawals; initial expenses; allocate to vault cash; certificates of deposit; a competitive interest rate; it is up to you; return the principal; balance sheet; at any given moment; bank’s assets; bank’s liabilities; assets and liabilities.

Exercise II. Find in the Text the English for:

вкладывать деньги; депозитные сертификаты; получить ссуду на $6 миллионов; банковский начальный капитал; арендовать здание; нанять и подготовить персонал; часть стартового капитала; открыть текущий чековый счет; сберегательные счета и срочные займы; потенциальные заемщики; процент по займам; достаточно высокая процентная ставка; вернуть основную сумму; к установленному сроку; вероятность воздействия; чистая стоимость.

Exercise III. Answer the following questions:

1. How to start your own bank with?

1. What should obtain next?

2. What should you do with some of your initial stake?

3. What are those funds used for?

4. Why do you need to keep enough cash in the vault?

5. Where is the rest of the initial stake placed?

6. What services do you provide customers with?

7. Who determines the bank’s policy? How?

8. Why do you need an accounting system for?

9. What is the most important account?

10. What does it show?

11. What should be the value of equity?

Exercise IV. Fill in the proper words: