Commercial Banks

Commercial banks are the largest, oldest, and probably most important financial institution in the U.S. and in most other countries as well. First of all, banks receive money for safe-keeping, and make loans to borrowers. Banking therefore is the business of receiving, protecting, and lending money. The primary role of banks is to intermediate between savers and borrowers. Simply put, banks pool the savings of households and make them available to businesses that want to invest.

Commercial banks perform a variety of financial services. These services include a wide range of checking and savings deposit accounts, consumer loans, credit cards, home mortgage loans, and business loans. Many banks rent safe deposit boxes to customers who want to store jewelry, legal documents, artwork, and other valuables.

Bank assets fall into three main categories: loans, securities, and cash assets. Because lending is the bread-and-butter business of commercial banks, loans compose the predominant category of assets held by commercial banks.

Those loans that commercial banks make to businesses are commercial and industrial loans (C&I). Businesses use funding from C&I loans to meet day-to-day cash needs or to finance purchases and equipment. C&I loans may be secured or unsecured. Secured loans are those backed by something of value, known as collateral, which may be seized by the lender if the borrower fails to repay the loan. The most common type of secured loan is mortgage, in which a piece of property like a building is used as collateral.

An unsecured loan requires no collateral. One example of unsecured loan is a working capital line of credit, which is an agreed-on maximum amount of money the bank is willing to lend the business during a specific period of time, usually one year. Once a line of credit has been established, the business may obtain unsecured loans for any amount up to that limit. Companies often arrange a revolving line of credit to be sure of obtaining credit when needed.

Commercial banks also extend credit to individuals. These loans are consumer loans. Banks usually issue consumer loans for purchase of automobiles or boats in the form of installment credit. The individual borrower agrees to repay the principle and interest in equal periodic payments. Real estate loans are ones that banks make to finance purchases of real property (such as buildings) by businesses and individuals.

When business people borrow money from a bank, they agree to pay a certain number of dollars (yens, rubles, etc.) a year in interest for every hundred dollars they borrow. The sum borrowed is called the principal, and the percentage paid is called the rate. If they pay five dollars for every hundred dollars they borrow, they are paying interest at a rate of 5 per cent. The upper limit of the interest rate is fixed by the amount borrowers can afford to pay and still make a profit with their borrowed money. The prime interest rate (prime) is the lowest interest rate charged by banks for short-term loans to their most creditworthy customers (preferred borrowers).

Banks are also heavily involved in foreign exchange trading. Nearly all banks trade currencies. Individuals, businesses, and governments may buy and sell currencies in a foreign exchange department of any commercial bank.

Rank Bank	Country	Assets US $ millions	Capital US $ millions
1 The Royal Bank of Scotland Group plc	United Kingdom	3,483,179	14,355. 33
2 Deutsche Bank AG	Germany	3,068,724	2,035. 67
3 Barclays PLC	United Kingdom	2,977,491	3,035.53
4 BNP Paribas Group	France	2,891,948	19,267.10
5 Credit Agricole Group	France	2,303,497	38,138.50
6 UBS AG	Switzerland	1,881,246	273.58
7 JP Morgan Chase Bank National Association	USA	1,746,242	1,785.00
8 Societe Generale	France	1,574,478	1,011.56
9 The Bank of Tokyo-Mitsubishi	Japan	1,494,350	12,000.15
10 Bank of America	USA	1, 471,631	3,020.04
11 Banco Santander	Spain	1,462,493	5,569.22
12 UniCredito Italiano	Italy	1,456,892	9,313.48

Exhibit 7.1 The World’s Largest Banks

(Source: These bank ratings are compiled from balance sheet information

included on Bankersalmanac. com available at February 10, 2010)

Rank Bank	Assets RUR (millions)	Capital RUR (millions)
1 Sberbank	7 023 142.73	1 150 500.00
2 VTB	2 689 828.73	382 817.71
3 Gasprombank	1 692 638.84	155 983.91
4 Russian Agricultural Bank	906 866.32	162 265.85
5 Bank of Moscow	766 467.42	76 669.32
6 VTB 24	663 952.89	79 139.87
7 Alfa Bank	586 029.27	73 535.84
8 Raiffeisenbank	529 784.13	62 974.24
9 UniCredit Bank	508 567. 35	72 526. 84
10 Rosbank	457 967.66	43 381.14
11 MDM Financial Group	409 827.55	32 778.74
12 Promsvyazbank	407 359.86	43 044.98

Exhibit 7.2 The Largest Banks of Russia

(Source: Rating is based on data of agency RBK. Date of a rating: 01.01.2010)