Three Kinds of Banks

Bank is a financial institution, where people deposit all their money to keep it safe. It is one of the safest modes of investment. Banks aren’t only accepting deposits from customers, they offer people loans to purchase property and other things to their customers. There are different kinds of banks all around the world where each bank offers different kinds of service to their customer based on their needs. Here are in this article we will help you with complete information on 3 kinds of banks and their services.

Here is a list of 3 kinds of banks and know the services offered by them to customers. Most of the people can use these banks to fulfill their needs and as they can increase their earnings by investing in mutual funds. You can choose the best kind of banks based on your needs.

Retail banks

Retail banks deal directly with small business owners and consumers. The main focus of these banks is savings and savings products mainly, their deal with other products also like loans and other mortgages. If you need a loan, you can apply to the banks using either the online or offline application. Once the applications are received by the bank representative, they will contact you through phone and give you all the details regarding the loan application process. If you want to protect your investment you can use the fixed deposit options available in a bank, where you can get earn extra money based on the maturity of fixed deposit you have deposited, you can also use the savings option to protect your investment. If you’re running a business, you can make use of the current account option.

Corporate banks

Corporate banks offer a wide range of service to business people based on their needs. Where if you need a large sum of money to expand your business to various locations, in such times the corporate banks are the best option you can go with. Corporate banks deals with both small business and large business owners. Every corporate bank in your location follows a different application process based on the rules and laws applied to all the banking institutions by Federal bank.

Investment banks

These offer services like insurance and mutual fund options. Insurance options protect your investment and matures after a few years. These loans benefit you, else you can go for mutual fund options which are risk based.

Choose the right kind of bank and protect your investment.

Offshore Banking Can’t Fool Uncle Sam

In the fast-changing world of offshore banking, adaptation is critical – which is why I’m writing to you about banking in the Central American nation of Belize, rather than the topic I had scheduled for today.

If you have an offshore banking account in that country, pay close attention. Even if you don’t, there’s an important lesson for anyone banking abroad.

Belize is a small English-speaking country on the eastern seaboard of Central America. Settled illegally in the 17th century by piratical British wood merchants, the country has always had an independent streak. Indeed, the country’s banks have long welcomed foreign account-holders.

Unfortunately, a greedy fellow to the north named Uncle Sam seems poised to put an end to much of that.

Offshore Banking 101

Before I discuss events in Belize, here’s what you need to know about offshore banking:

It is legally impossible for a U.S. taxpayer to have a “secret” offshore bank account, unless it stays below $10,000. If the sum of your offshore accounts exceeds $10,000 at any time during the year, you have to report them all to the IRS on a form known as the FBAR. Accounts with a somewhat higher total balance must be reported under the Foreign Account Tax Compliance Act (FATCA). This includes accounts for foreign entities such as LLCs or partnerships over which you have substantial ownership and control. Failure to report triggers draconian penalties, including massive fines and imprisonment.

Now, Uncle Sam isn’t content to trust taxpayers. To that end, the IRS demands that all foreign financial institutions report U.S.-owned accounts, under pain of ejection from the global financial system. This irritates the heck out of foreign banks, who therefore generally refuse to open accounts for Americans unless you live or own property and/or a business there, or if you have a substantial amount in an offshore brokerage account – $250,000 or more.

Some foreign banks have tried to play fast and loose with this imperialist system of U.S. financial control by keeping quiet about American accounts. The results are always the same: The IRS eventually finds out about it, and everyone suffers. That’s why I always advise you to comply with U.S. law – the risk isn’t worth it.

Belize Banks Busted

Last week, the U.S. government obtained a court order forcing Bank of America and Citibank to disclose information about all U.S. taxpayers who hold offshore accounts at Belize Bank International Limited (BBIL) or Belize Bank Limited (BBL), for which the two American banks provided correspondent banking services.

The order was obtained by the U.S. Department of Justice’s tax division. This means the investigation is probably aimed at concealed assets and tax-evasion schemes in Belize. In probable anticipation of the order, BoA and Citi earlier this year shut off their correspondent services to BBL and BBIL, who are no longer be able to execute international transfers in U.S. dollars. (Belize’s other domestic banks – ScotiaBank Belize and Heritage – are not affected.)

This court action appears to have been triggered by voluntary disclosures made to the IRS by U.S. BBL and BBIL customers who admitted their foreign accounts through the IRS’s offshore amnesty programs. After all, if there’s one non-reported account at a bank, there must be more.

Problems with Belizean banks have been brewing for some time. In November 2013, the Caribbean Financial Action Task Force (CFATF) officially named Belize as failing to address “anti-money laundering deficiencies.” Belizean banking authorities seem to have remedied these, since the “gray-listing” was lifted early this summer. Nevertheless, BBL and BBIL are probably being sacrificed as scapegoats to appease the vengeful gods of the IRS.

Bank Smart

People often ask me two questions. The first is where they can keep money hidden outside the U.S. I always respond the same way: You can’t. You can keep gold, land and other physical assets in ways that aren’t reportable to the IRS, but not a bank account.

The second question is why I continue to recommend offshore banking if that’s the case. Again, it’s simple: I’m not in the business of advising people how to break the law. I help people take maximum advantage of what’s legal. If you have genuine interests offshore, and/or if you have sufficient funds to make banking/investing abroad worthwhile for yourself and for a foreign bank, then I can show you how to do it in the most effective way possible.

In the past, we have recommended Belize Bank Limited for offshore banking accounts. We have immediately withdrawn that recommendation.

So whether you have a hidden bank account in Belize or anywhere else – or not – my message is the same: Don’t try to fool Uncle Sam. There are safer – and far more advantageous – ways to protect your assets offshore, all perfectly legal.

After all, it’s my business to know how.

Top 10 Steps To Reclaiming Your Bank Charges

1.Know Your Rights

When a person opens a bank account, or credit card account they are entering into a contract with the bank. Going overdrawn or any other action that causes the bank to charge you is considered as a breach in contract, which is know as liquidated damages, and the courts can enforce payment. However, the charges must reflect the actual costs to the bank due to breach of contract. Anything more than that and it becomes a penalty. This is unenforceable by the courts. The argument that the charges exceed the customers losses and are not enforceable by law is covered in the Unfair Terms in Consumer Contracts Regulations 1999, Unfair Contract Terms Act 1977 and at Common Law. Some banks argue that charges are a fee for a service, however if this is the case then they must be reasonable under S.15 of the Supply of Goods and Services Act 1982.

2.Spot Excessive Charges

You can claim back any charge that the law would class as a penalty. Charges to look out for are charges such as £20.00 for a letter to be sent out informing a customer that they have gone overdrawn, or £30.00 for a bounced cheque. Quite clearly the cost to the bank is nowhere near these amounts.

3.Work Out What You Are Owed

Go through all of your bank statements and highlight the charges that you consider to be excessive. You need to be reasonable about these charges as it may eventually go to court, and there is a chance that the courts will rule in the banks favour if you start claiming back charges that are in fact fair and reasonable.

4.Write And Ask For Your Money Back

Using our template letters, send your bank a letter requesting your money back. After a day or two give them a call to follow up that letter and make sure it has been received and dealt with. You may be surprised at what a difference persistent correspondence makes. Make a note of all dates of when you sent letters, times of phone calls, and names of the people you spoke to.

5.See What The Banks Have To Say

The bank should reply within 2 weeks. If the bank does not reply, or gives a response stating that it is dealing with your request and will be in touch with you shortly, contact them straight away informing them that 2 weeks has passed, and that if you do not hear a definitive answer within 14 days you will start court proceedings.

If the bank offers you as partial refund refuse it.

If the bank sends you a letter telling you that you are not entitled to reclaim your bank charges and that you are mistaken, take no notice of it. You are entitled to reclaim your charges, and banks know this. Many banks have taken to sending out letters such as these in order to call your bluff, thinking that you won’t take them to court.

6.Learn About Court Action

You are starting to move away from letters and moving onto legal action. Try visiting the following websites and have a look through what people have to say. Their experiences say that action works.


You need to be aware that you will incur the costs of the court proceedings, but unless your claim is over £5000, in the unlikely event things will go to court, your claim would be heard in a small claims court where you would not be held liable for the bank’s legal costs.

It may be a good idea to open a second current account with another bank, as it has been reported that a bank may try close your account after such actions.

7.Make A Claim

There are two ways to make a claim. The first is by going to the county court in person. The second is a much more comfortable way from your own computer via the courts system’s Money Claims online service. Save the details as you go, and pay the fees which range from £30 – £120 online.

You should also register at the following website for support and advice on making a claim:

8.See What The Bank Does

The bank may now repay your entire charges. If the bank ignores your claim, after 14 days you will win by default. If the bank responds in acknowledgement it has a further 14 days to build a defence. Again if the bank fails to respond after the second fortnight you win by default.

If the bank enters a defence (which it will usually do last minute), read on…

9.The Bank’s Defence

It is very unlikely that things will go this far, but if they do you will receive a court questionnaire which you must fill in and return to the court within 1 week. Send a copy to the bank also to show them that you are serious.

Pressure groups say that this is usually the point where the banks will back down and not turn up to court. You will win by default.

If in the event that the bank is really playing hardball and turns up, do not worry. There have only ever been two cases that have resulted in legal action where the courts have won compared to hundreds of thousands of claimants winning the cases.

10.Don’t Let History Repeat Itself

This is the most important part of the guide. The best way to reclaim your charges is not to get them in the first place. If you keep on top of things and don’t put your accounts in a position to be charged then all of this hassle can be avoided. Banks provide financial advisors which can discuss your financial situation and help you avoid such situations.

Non-Resident Bank Account in Canada

Non-Resident Bank Account in Canada:

Americans have the ability to open a bank account easily in Canada, if you hold a legal work permit or are a civilian of Canada, then you can open a resident bank account in Canada. However, if you are not a resident of Canada, then you have the option to open a non-resident bank account with the help of your photo identity, which includes passport or driving license. You have several banks to select from, but deciding which one to use can be overwhelming.

Things to Consider:

Below discussed are some vital considerations to think, while deciding to open a bank account in Canada:

1. Transfer of Money

At times, you may need to send and receive money from or to your bank account situated across the nation. In addition, it can be very expensive to send and receive money across international bank accounts. You have numerous international money transfer services, which do not require bank accounts, though the service charge is quite high. If sending and receiving money with international transfer service is a top priority, then you may have to consider a bank that has a special account for immigrants or reduced international transfer charges in Canada.

2. Transfer of Money within Canada

Not every country follows the rule of paying rent through checks, as when you pay rent through checks, the bank may charge say around $5 to cash your check. Hence, property owners ask their tenants to deposit their rent (cash) directly into their bank accounts or through electronic transfers. Therefore, choose a Canadian bank, which offers online banking facility to transfer money without visiting the bank in person to deposit the money in your account.

3. Payroll Transfer

Often employers pay salary directly into the account of employees. However, if your employer pays a bearer check (or cash if you lack work permit), then you may need to visit that particular branch and cash in. In case, you go to your bank or any other bank other than your employer’s bank, you may have to pay a fee of $4 to $6 for cashing the check. Therefore, you need to consider a bank, which accepts your payroll check without charging heavy service fees or else, try to open a non-resident account in the bank of your employer, as this will help to do all banking deals at one place without the hassle of visiting multiple banks and paying additional charges.

4. Branch Nearer to Home or Office

The banking hours of banks in Canada have to be considered, while deciding to open a non-resident bank account in Canada. Most banks function from Monday to Friday, while few others function from Monday to Sunday. It will be of great use, if your bank works until 6 p.m. If you think you need to daily transactions, then open an account with a bank that has branch close to your office or home. In addition, you can apply for debit card from your bank, since these days, banks even offer debit cards to non-resident citizens too.


While looking for a best bank to open a non-resident bank account in Canada, you will be surrounded with too many options. On the other hand, it is wise to take suggestions from other people, who hold accounts in the bank, wherein you decide to open an account in Canada.

In addition, you need to consider the bank charges, as the fees charged may vary from one bank to another. The leading banks in Canada are the Canadian Trust and the Canadian Imperial Bank of Commerce. Besides these, you can also find some international banks in Canada.

Was the Crash of an Icelandic Bank Icesave in the Netherlands Avoidable?

Was the Icesave fiasco avoidable?


This article analyses both the risk management aspects that were known to all market participants and the risk management regulatory framework which existed prior to the Icesave approval by the DNB in May 2009. The aim of this analysis is to attempt to understand whether regulators and the DNB in particular exhausted all their means and analysed thoroughly all information available at the time of the granting of banking permission to Icesave in the Netherlands.

At the time of the implosion of Icesave the bank had more than 100,000 accounts and more than 1, 7B Euro deposited money, but according to Landsbanki’s plans before the Icesave launch it expected to take only about 400-500 M Euro by the end of 2008. It looks like the DNB could do little to prevent the explosive growth of Icesave in the first few months of its operations.

Recently a report requested by the Dutch Parliament was published by two academics, DeMoor-Van Vugt and Du Perron from the University of Amsterdam. The report presented all events leading to the nationalisation of Landsbanki (the mother bank of Icesave) in chronological sequence, and analysed the actions of regulators both in the Netherlands and Iceland related to the granting of banking permission to Icesave. The report was mainly focused on the legal aspects of granting the banking license, with analysis of the European Passport regime and the home/host country model.

By granting the permit, Icesave was included in Dutch Deposit Guarantee scheme, although the home country (Iceland) was responsible for regulating the Landsbanki group. The Icelandic regulator primarily looked into the Group level reports, which were periodically submitted and showed solid liquidity buffers and withstood stringent stress tests.

The fact that the DNB granted the license provided the quality image to the bank. The authors stress that the DNB did not have the legal tools to prevent the granting of the license, but if it had been handled less favorably and more time spent analysing and asking tough questions, the whole disaster may have been prevented.

The most important recommendation of the report is that the European regulations should be substantially revised, to prevent a situation where a country bears the risk of failure of a financial institution (via a deposit protection scheme), but has little power in regulating such institution.

The difference between Foreign Branch versus subsidiary explained

A branch of a foreign bank is obligated to follow the regulations of both the home and host countries. Because the foreign branch banks’ loan limits are based on the parent bank’s capital, foreign banks can provide more loans than subsidiary banks. That was probably the main reason why Icesave has been launched as a branch and not a subsidiary.

The risk management framework prior the granting of a banking license to Icesave operations in the Netherlands

Now let’s move on from the legal to the Risk management framework which existed before the time of granting the banking license to Icesave.

Liquidity regimes are nationally based according to the principle of “host” country responsibility (although in some cases, the task, though not the responsibility, of supervision of branches is delegated to the home supervisor).

The risk assessment method used by the DNB called FIRM, which is kind of a scoring cards model. On the basis of the FIRM score the DNB sets the risk profile of an institution, which can lead either to a light or heavy supervisory regime. A branch office of a EU bank has a very small risk profile according to this model because it can request funds from the mother bank in the EU[1].

According to this method the DNB supervises on liquidity and integrity risks, which were both assessed as limited. By that time, February- May 2008, the Basel II requirements already had to be implemented and Landsbanki was informed about the requirements.

Let’s have a look now at the liquidity risk of Landsbanki at that time.

The original Basel II accord did not include liquidity requirements and a document named “Liquidity Risk:Management and Supervisory Challenges” dated February 2008 was the main source in defining the liquidity risk framework.

In that document the following elements were highlighted: liquidity policies, stress tests, scenario analyses, contingency funding plans, setting of limits, reporting requirements and public disclosure

It is worth mentioning that one important differentiating factor across regimes is the extent to which supervisors prescribe detailed limits on the liquidity risk and insurance that banks should hold. This is in contrast to an approach that relies more on reviewing and strengthening banks’ internal risk management systems, methods and reports.

The core sentence is: the application of liquidity regimes on a local management or legal entity basis requires that each legal entity be sufficiently robust with regard to external shocks. This may require a pool of liquid assets to be held locally, or for each entity to have independent access to contingent liquidity lines.

This pool has been requested by the DNB from Landsbanki but only just before the Landsbanki collapsed (September 2008).

Diversity in liquidity regimes

Liquidity regimes are affected by policy choices made by national authorities relating to the desired resilience of banks to liquidity stress. Factors include those nationally determined such as insolvency regimes, deposit insurance guarantees, and central bank credit and collateral policies, including intraday, standing facility, or emergency liquidity assistance arrangements, as well as the structure of the banking sector itself.

Communication between regulators

In the European Directive on Financial Stability a home country is obliged to contact the host country in question in case of known deficiencies. Strangely enough, on request of the DNB to provide more explanation about the explosive growth of Icelandic banks and liquidity problems, the FME (Icelandic supervisor) replied in August 2008 as following: “.. Landsbanki’s business is healthy, capital levels are strong and it performs well in various stress-tests that the FME applies.” [2].

Role of the supervisors in analyzing the market trends

In the Basel document regulating liquidity management it was clearly stated that to protect local entities supervisors have a duty to help ensure the resilience of entities within their jurisdiction to protect local depositors.[3]

In the later document issued in September 2008 and named “Principles for Sound

Liquidity Risk Management and Supervision” there is more clear description of the role of supervisors with an emphasis on the comprehensive assessment of a bank’s overall liquidity risk management framework by the monitoring of a combination of internal reports, prudential reports and market information. The market information was a missing link in the analysis of Landsbanki. The main European and Dutch banks had already withdrawn from Iceland by the end of 2007 as more reports came in indicating that the Icelandic economy and banks grew very fast and the bubble might burst very soon. The Swap rate of Icelandic banks and specifically Landsbanki were very high in the interbank market. This means that counterparties have less trust with these banks than with other banks. It worth mentioning that the Swap rate of Landsbanki was very high, (see a graph in the attachment).

So consequently the market knew that something was wrong with the Icelandic banks, but supervisors it seems were unaware or seemingly ignored the market behaviour.

Challenges in Liquidity Risk Management and Key Risk indicators

In certain circumstances, firms may also face challenges in transferring funds and securities across borders and currencies, especially on a same-day basis. For example, institutions operating centralised liquidity management may be dependent on foreign exchange (FX) swap markets.

For example, if the liquidity reserve of a bank in for instance NL is transferred within a cross-border group to Iceland where the local entity faces a liquidity shock but the transfer fails to resolve the problem within the group, the local entity in NL is likely to come under severe pressure and will have no liquidity buffer to prevent failure. In that event, depositors in NL are in a potentially worse position than before the transfer. If however the transfer succeeds in stemming the problem, and there is no reputational contagion, then depositors in Iceland would be better off and those in NL no worse off.
A bank also should design a set of key risk indicators or KRI’s to identify the emergence of increased risk or vulnerabilities in its liquidity risk position or potential funding needs. Such early warning indicators should identify any negative trend and cause an assessment and potential response by management in order to mitigate the bank’s exposure to the emerging risk.

Early warning indicators can be qualitative or quantitative in nature and may include but are not limited to:

o rapid asset growth, especially when funded with potentially volatile liabilities
o growing concentrations in assets or liabilities
o increases in currency mismatches
o a decrease of weighted average maturity of liabilities
o repeated incidents of positions approaching or breaching internal or regulatory limits
o negative trends or heightened risk associated with a particular product line, such as rising delinquencies
o significant deterioration in the bank’s earnings, asset quality, and overall financial condition
o negative publicity
o a credit rating downgrade
o stock price declines or rising debt costs
o widening debt or credit-default-swap spreads
o rising wholesale or retail funding costs
o counterparties that begin requesting or request additional collateral for credit exposures or that resist entering into new transactions
o correspondent banks that eliminate or decrease their credit lines
o increasing retail deposit outflows increasing redemptions of CDs before maturity
o difficulty accessing longer-term funding
o difficulty placing short-term liabilities (eg commercial paper).

In my opinion many of these KRI’s were in red during the approval period in first half of 2008.

On December 17, 2009, the Basel Committee on Banking Supervision (BCBS) issued two consultative documents intended to apply lessons of the financial crisis to strengthen bank capital and liquidity frameworks while harmonising cross-border supervisory approaches. The central purpose for these revisions is to emphasise the holding of higher-quality capital and widen the pool of risks it is to support.


It is certain that that the Icelandic authorities bear responsibility for the Icesave collapse, but also so do the Dutch and UK authorities for allowing Icesave to operate in their markets without adequate regulation and supervision of its operations or an appreciation of the consequences of a collapse (notwithstanding the European passport rules that allowed Icesave to operate in those markets).

The actual CDS spreads, the Basel II working rules on risk management that prescribes the DNB to do an integrated risk assessment, including Landsbanki and the FX exchange risk, the problems with the loans of Icelandic banks with the Luxemburg Central Bank, the different ‘warning’ reports on Icelandic banking by market participants and the lack of reserves in the Icelandic Central Bank were all reasons enough to at least take more than a formal procedural approach during granting the banking license to Icesave.

Please send your comments to: [email protected]
Written by Boris Agranovich

How Banks Really Work and Why Banks Are Not a Good Solution for Long Term Investing

Everyone puts money in a bank. The first time as a child that you received money, whether it was from a gift at your birthday party, or money you earned from raking the lawn or taking the trash out, your parents had you put money in the bank. Your parent’s put their money in the bank, and their parents did as well. After all, it’s a safe place to store it. But is a bank the a good way to grow your money? This article will detail how banks work, what CDs and MMAs are, and these options are not good long term savings solutions.

With a typical banks’ savings account, you lend the bank money in the form of your deposits and they pay you a guaranteed interest rate (generally less than 1%) and provide you safety in the form of FDIC insurance. Banks then lend that same money that you loaned them over and over again for a profit.

This system is known as Fractional Reserve Banking, which requires the commercial banks to keep only portion of the money deposited with them as reserves. The bank pays you a guaranteed interest rate on all your deposits, pools the money loaned by its other customers, and makes new loans.

Here’s an example of how it works:

Somebody deposits $1,000 with Bank A. Bank A is obligated by law to keep 10% of the deposited money as a reserve, so the bank keeps $100 and lends out $900. Later, the $900 loan is deposited in another checking account. This second bank also wants to make money by giving out loans, that’s why it keeps the required $90 and lends $810.

Fast forward to a deposit with a fourth bank and you’ll get the following:

Bank – Deposit – Reserve – Loan
Bank #1 – $1,000 – $100 – $900
Bank #2 – $900 – $90 – $810
Bank #3 – $810 – $81 – $729
Bank #4 – $729 – $729 – $0
Total – $3,439 – $1,000 – $2,439

As you can see from the table above, the banks created $2,439 based on the first $1,000 deposited. How much money did you receive as guaranteed interest for your $1000? $5 per year! Banks pool your savings to make large profits and pay your savings accounts less than the inflation rate as interest. Hardly seems fair to me.

In addition to your typical savings and checking accounts, banks also offer other opportunities to pay you for your funds, such as Certificate of Deposits and Money market accounts.

Certificate of Deposits

Simply put, a CD is a short term to midterm investment offered by commercial lending institutions that offers FDIC Insurance and a guaranteed interest rate. The consumer lends the bank money for a fixed term and in exchange is paid a predetermined interest rate.

The advantages of a CD are as follows:

* Guaranteed interest rate as long as you keep the money in the CD for the entire term
* FDIC Insurance to insure your money

The 2 main problems with CDs are the penalties for early withdrawal and the low interest rates. The fees for early withdrawal can be substantial and you will want to make sure that you know what the penalties are before entering into any agreement with the bank.

Also, the interest rates are generally low for CDs as well. As of the summer of 2010, 2 year CD rates were under 2% interest. Traditionally inflation is around 3%, so keeping money in a CD can be counterproductive.

While you earn a guaranteed interest rate and have protection in the form of FDIC Insurance, is this really the best way to grow your money? Let’s take a look at 2 different people and see which one can save the most.

Person 1 has $20,000 to invest and decides to put it into a CD for 2 years that guarantees an interest rate of 2%. Person 2 has $20,000, puts it in a shoe box and buries it in the back yard. He is also a coffee addict and gets of Venti cup of Coffee at Starbucks every day for $2.00. Person 2 decides to stop purchasing a cup of coffee and put that money in an envelope and keep the savings under the mattress. Who will save more money?

Person 1 invests $20,000 for 2 years in a CD offering a guaranteed 2% interest, and when the CD matures, his money will now be worth $20,815.52, or will have earned $815.52.

Person 2 stops spending $2/day for (100 weeks * 5 days a week * $2)= $1000.00.

Person 2 no longer purchasing a simple cup of coffee will save more than Person 1 investing in a higher end CD! In fact, it will take Person 1 36 years to double their investment with a 2% interest rate! If not buying a cup of coffee and keeping the money under your mattress beats your savings plan, it is time to look for something better.

Money Market Accounts

Simply put, an MMA is a premium, high interest savings or checking account. These MMAs can be started at any commercial lending institution. The money you keep in this account will be invested, by the bank and collects the return. You are guaranteed an interest rate during this process.

The advantages of a Money Market Account are as follows:

* Interest is compounded daily and paid monthly
* Can usually write anywhere from 3-6 checks per year without penalty
* Heavily regulated by SEC which forces lending institutions to make safe investments
* FDIC Insurance to insure your money if the bank goes under

Interest rates vary from bank to bank so it’s a good idea to do some research prior to investing. Generally, the higher the interest rate, the higher the minimum balance.

Some of the disadvantages of the MMA are the minimum balance fees, the varying interest rates, and tax consequences on your interest earning. Also, the interest rates are not that high. As of the summer of 2010, the highest MMA interest rate I could find is only 2%.


In conclusion, a typical bank will pool their lender’s money together, make profitable investments, keep the collateral, and then pay you an interest rate just under the inflation rate, and charge you fees in an attempt to get back the money paid to you in the form of interest. Banks offer safety in the form of FDIC Insurance, which basically gives the banks carte blanch to make as many risky investments as possible since the government will pick up the tab if anything goes wrong. Isn’t it amazing that with the combination of fractional reserve banking and the FDIC backing all deposits that the banks still require a bailout? Bank accounts are good for keeping money on a short term basis for paying bills. Investing your money in a vehicle where you can earn a guaranteed fixed interest rate is the only way to safely grow your money.

Offshore Bank Account Opening and Offshore Banking Benefits

An offshore bank account is an account which is set up outside the country of residence of the account holder. The main reason for an individual or company to employ offshore banking is to capitalize on jurisdictions that offer a low or zero percent tax on their wealth. Offshore banking can cater to investors of all levels and the process to open an offshore account is relatively simple and similar to that of your standard local bank account.

Benefits of an Offshore Bank Account

Offshore banking has been long considered to be an option only available to the wealthy, however in recent times it has often been employed by individuals or companies that wish to invest their money to gain immediate and long term financial benefits.

When opening a bank account overseas, effective tax planning and account anonymity are two aspects which are considered with upmost importance. Other advantages of offshore banking include;

  • Economic and financial stability of the chosen jurisdiction
  • Low or zero percent tax
  • Safe and secure banking enabling anonymity
  • Flexibility in terms of access to funds globally
  • Enhanced legal and political conditions
  • Improved asset protection
  • Higher interest rates from banks in selected jurisdictions

Essentially an offshore account provides the means for wealth to be protected, preserved and ultimately increased, as favorable conditions are often offered by offshore banks. These factors have contributed to the increasing number of investors opting to deposit their money in international bank accounts.

The more favorable jurisdictions considered for offshore account opening provide low or zero percent tax, often referred to as ‘tax havens’, such as the BVI, Cayman Islands and Seychelles. Most tax havens ensure that your account details are kept in confidence, providing improved and enhanced asset protection.

Process of Opening an Offshore Bank Account

Finding a suitable jurisdiction

When deciding to open an offshore bank account, the first step is to determine which jurisdiction favors the investor the most. It is often recommended to acquire the assistance and guidance of a professional firm on order to assist with the process. There is a wide selection of jurisdictions which need to be considered when opening an offshore bank account as each poses its own benefits to investors.

Begin the account opening procedure

Once an appropriate jurisdiction is chosen, you can initiate the account opening process. A professional firm who has contacts with reputable banks internationally can liaise with the bank on the behalf of the client ensuring that the process is completed in line with all legalities. In the event that you do not seek assistance from a firm, locating a jurisdiction to open an offshore account is the first step to establishing it.

Locating a suitable banking institution

After a jurisdiction has been chosen, research on the local banks and finally determining which bank offers the best interest rate and services to your specific requirements should be conducted. This will enable you to determine the regulations the bank must comply with, how they open accounts, and whether you need to travel overseas to open the account – if they require personal presence.

Most offshore banks are flexible in their procedure and may not require the client to travel.

Selecting a bank account type

This is followed by finding out what type of account the client requires. The type of bank account will also determine what documentation is needed and the legal requirements the offshore bank must satisfy. For example, in order to open a corporate offshore account, a minimum amount of capital is required and this figure may vary with different jurisdictions.

Supplying the required documentation

The documentation that is needed can then be processed after the above factors have been determined. The procedure after this point is dependent on the bank’s application process and the jurisdiction’s laws. Generally, an offshore bank will require certain documentation, including a proof of identity, proof of address, while corporate and investment accounts may have additional requirements such as business plans or minimum amount of investment.

Types of Bank Accounts available

The three main categories of offshore bank accounts are personal, corporate and investment. The type of account will determine the bank account opening process. Any type of bank account you decide to open must meet the specific requirements of the jurisdiction and the chosen offshore bank.

Personal Account – A personal bank account is one which an individual opens for private use, and not for business purposes. One of the main reasons for a personal account is to enhance an individual’s personal capital, thus enabling an individual to benefit from an offshore jurisdiction with low or no tax and potentially improved political and economic conditions.

Corporate Account – In contrast, a corporate bank account is one which is employed by companies and businesses therefore the services offered in this account are specifically tailored for businesses. A minimum amount of capital is required in order to establish the corporate account.

Investment Account – An investment account presents potential investors with the perfect environment to manage their wealth and deal with their funds. It can also serve the purpose of buying stocks, mutual funds, custodial accounts and individual brokerage accounts. This type of account is classified as a financial tool as it enables investors to buy stocks and bonds whilst offering high security and profitable returns.

A Guide to Swiss Banking – Part 2

In the first part of this guide, you learnt about some of the main benefits of Swiss banking. You also discovered how to open a Swiss bank account, and how to use it for savings and investment purposes. In this second part, we deal with making deposits and withdrawals.

Deposits & Withdrawals
How can I deposit money in my Swiss bank account?

Once your account has been opened, you can deposit money to your account in several ways:

  • Cash deposit
  • Traveller’s check deposit
  • Securities deposit
  • Transfer from another account
  • Receive a bank transfer
  • Personal checks
  • Bank checks

Selecting the most appropriate method of deposit depends on the amount deposited, the degree of confidentiality desired and the level of convenience.

Can traveller’s checks be tracked?

The issuing bank can discover where traveller’s checks were cashed. In fact, you are always required to reveal your identity when making a purchase with traveller’s checks. Since each check is identifiable by a unique number, it is possible to trace it. However, in practice this type of search is rarely conducted.

Can I make a deposit with a postal order?

At the time of writing this, there are no known restrictions in Switzerland regarding receiving deposits in the form of postal money orders to your Swiss bank account. However, you should verify that the postal system you are using allows you to send money to a foreign bank account.

Can I make a deposit to my Swiss bank account via Western Union?

Western Union’s services are only for individuals wishing to transfer money to other individuals. At the time of writing this, it is believed not to be possible to use Western Union to deposit money to a Swiss bank account.

How can I withdraw money from my account in Switzerland?

There are several ways you can withdraw money from your Swiss bank account:

  • Credit card
  • Cash withdrawal
  • By traveller’s checks
  • Bank transfers
  • Checks

Selecting the most appropriate method of deposit depends on the amount deposited, the degree of confidentiality desired and the level of convenience.

Which credit cards can I use with my Swiss Bank Account?

For the fastest access to your Swiss bank account, a credit card offers the freedom to access your funds, 24 hours a day. Wherever you are, you can withdraw cash discreetly from ATMs.

How can I get a credit card?

You can acquire a credit card as long as you make a security deposit. Swiss banks do not conduct credit inquiries: the security deposit is considered to provide the security the bank requires.

Which credit card offers the most confidentiality?

Most banks offer credit cards without the bank logo. Nevertheless, experts can identify your bank by the first four digits of your credit card number.

If you wish to avoid any connection to the bank, you can, in some cases, request a card be issued by an institution other than your bank.

It is illegal for credit card companies to provide any information on cardholders. Just like the banks themselves, credit card companies are bound by Swiss professional secrecy.

How do I use a credit card discreetly?

Discreet cardholders will:

Use their credit card exclusively at ATMs

Avoid using their card in shops, restaurants and abroad*

Never pay for services in their country of residence*

The credit card slip issued during transactions contains information about your account: identification of the bank (or at least the country), your first name and last name.

Bank transfers

Generally, it takes two or three working days to transfer money from your Swiss bank account to an account in another industrialised country. However, this timeline may vary due to reasons beyond the control of your Swiss bank.

These delays may arise from a number of reasons:

The nature of your transfer

The way in which you transmit your request for payment to your bank affects the time it takes to complete a transaction. If you send your request to your bank by regular post, it should take two or three working days to process your order. Using online banking services though significantly reduces this delay.


Currently, 90% of all banks worldwide use the SWIFT network to carry out international bank transfers. SWIFT is a computerised system which allows banks to exchange internationally recognised messages that indicate credited amounts and authorise debits.

Some banks in developing countries are not affiliated with the SWIFT network and transmit this kind of information by telex. As a result of this, the time taken to transfer your money can be greatly delayed.

Affiliated Banks

SWIFT only transmits a message. In order for the operation to be completed efficiently, the receiving bank must have an account at the head office of the issuing bank. Generally, every major bank holds direct accounts at the head offices of other major bank and thus an interbank transfer can easily and quickly be made.

If the receiving bank does not have an account with the issuing bank, the wire transfer must go through an affiliated bank that can link the two banks. Sometimes, it is necessary to call upon several affiliated banks in order to transfer the money to the final receiving bank. This may take longer and each intermediary may also charge a commission for their services.


A wire transfer must take place through one of the countries which issues the currency. For example, a wire transfer in US dollars paid to an Italian bank must pass through an intermediary in the United States. As a result of this, the operation may take longer, depending on the currency being transferred.

*SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a company incorporated under Belgian law, whose headquarters is located in Brussels. Its role is to facilitate international banking operations through a very powerful computer network. SWIFT was founded in 1973 by 239 banks in 15 different countries and now more than 7,125 institutions in 192 countries subscribe to it.

Check books

Checks and check books are very rarely used in connection with a Swiss bank account. Your bank can prepare bank checks on your behalf, but this is rarely wise. The reason for this is that a check issued by your Swiss bank informs a number of people that your Swiss account exists, which imperils your confidentiality. Furthermore, it takes several weeks for a check to be completely processed.

If you wish to withdraw funds from your Swiss bank account, we would recommend using your credit cards as this is faster, more efficient and a more discreet.


All Swiss banks are obliged to ensure that any information held about you or your account is strictly confidential.

Swiss bank secrecy is one of the strictest in the world and is part of an ancient Swiss tradition of privacy. Under Swiss law any banker who reveals information about you without your consent runs the risk of a prison sentence.


The only exceptions to this rule are in regard to serious crimes such as arms smuggling and drug trafficking. In the event of accusations of tax evasion, your privacy is still guaranteed in Switzerland as failure to report income or assets is not regarded as a criminal offence in Switzerland. This means that neither the Swiss government, nor any other government, can acquire information about your bank account. Should they wish to obtain any such information, they must first convince a Swiss judge that you have committed a serious crime punishable under the Swiss Penal Code.

Private Matters

Bank secrecy will not be lifted for private matters such as inheritance or divorce as long as your banking information is held in strict confidence as is the case with nearly all Swiss bank accounts. Your account must be proven to exist if a judge wishes to pursue the case. This is why a numbered Swiss bank account provides the maximum level of confidentiality.

Banking Fraud – Prevention and Control

Banking Fraud is posing threat to Indian Economy. Its vibrant effect can be understood be the fact that in the year 2004 number of Cyber Crime were 347 in India which rose to 481 in 2005 showing an increase of 38.5% while I.P.C. category crime stood at 302 in 2005 including 186 cases of cyber fraud and 68 cases cyber forgery. Thus it becomes very important that occurrence of such frauds should be minimized. More upsetting is the fact that such frauds are entering in Banking Sector as well.

In the present day, Global Scenario Banking System has acquired new dimensions. Banking did spread in India. Today, the banking system has entered into competitive markets in areas covering resource mobilization, human resource development, customer services and credit management as well.

Indian’s banking system has several outstanding achievements to its credit, the most striking of which is its reach. In fact, Indian banks are now spread out into the remotest areas of our country. Indian banking, which was operating in a highly comfortable and protected environment till the beginning of 1990s, has been pushed into the choppy waters of intense competition.

A sound banking system should possess three basic characteristics to protect depositor’s interest and public faith. Theses are (i) a fraud free culture, (ii) a time tested Best Practice Code, and (iii) an in house immediate grievance remedial system. All these conditions are their missing or extremely weak in India. Section 5(b) of the Banking Regulation Act, 1949 defines banking… “Banking is the accepting for the purpose of lending or investment, deposits of money from the purpose of lending or investment, deposits of money from the public, repayable on demand or otherwise and withdraw able by cheque, draft, order or otherwise.” But if his money has fraudulently been drawn from the bank the latter is under strict obligation to pay the depositor. The bank therefore has to ensure at all times that the money of the depositors is not drawn fraudulently. Time has come when the security aspects of the banks have to be dealt with on priority basis.

The banking system in our country has been taking care of all segments of our socio-economic set up. The Article contains a discussion on the rise of banking frauds and various methods that can be used to avoid such frauds. A bank fraud is a deliberate act of omission or commission by any person carried out in the course of banking transactions or in the books of accounts, resulting in wrongful gain to any person for a temporary period or otherwise, with or without any monetary loss to the bank. The relevant provisions of Indian Penal Code, Criminal Procedure Code, Indian Contract Act, and Negotiable Instruments Act relating to banking frauds has been cited in the present Article.


Banking system occupies an important place in a nation’s economy. A banking institution is indispensable in a modern society. It plays a pivotal role in economic development of a country and forms the core of the money market in an advanced country.

Banking industry in India has traversed a long way to assume its present stature. It has undergone a major structural transformation after the nationalization of 14 major commercial banks in 1969 and 6 more on 15 April 1980. The Indian banking system is unique and perhaps has no parallels in the banking history of any country in the world.


The Reserve Bank of India has an important role to play in the maintenance of the exchange value of the rupee in view of the close interdependence of international trade and national economic growth and well being. This aspect is of the wider responsibly of the central bank for the maintenance of economic and financial stability. For this the bank is entrusted with the custody and the management of country’s international reserves; it acts also as the agent of the government in respect of India’s membership of the international monetary fund. With economic development the bank also performs a variety of developmental and promotional functions which in the past were registered being outside the normal purview of central banking. It also acts an important regulator.


Banks are the engines that drive the operations in the financial sector, which is vital for the economy. With the nationalization of banks in 1969, they also have emerged as engines for social change. After Independence, the banks have passed through three stages. They have moved from the character based lending to ideology based lending to today competitiveness based lending in the context of India’s economic liberalization policies and the process of linking with the global economy.

While the operations of the bank have become increasingly significant banking frauds in banks are also increasing and fraudsters are becoming more and more sophisticated and ingenious. In a bid to keep pace with the changing times, the banking sector has diversified it business manifold. And the old philosophy of class banking has been replaced by mass banking. The challenge in management of social responsibility with economic viability has increased.


Fraud is defined as “any behavior by which one person intends to gain a dishonest advantage over another”. In other words , fraud is an act or omission which is intended to cause wrongful gain to one person and wrongful loss to the other, either by way of concealment of facts or otherwise.

Fraud is defined u/s 421 of the Indian Penal Code and u/s 17 of the Indian Contract Act. Thus essential elements of frauds are:

1. There must be a representation and assertion;

2. It must relate to a fact;

3. It must be with the knowledge that it is false or without belief in its truth; and

4. It must induce another to act upon the assertion in question or to do or not to do certain act.


Losses sustained by banks as a result of frauds exceed the losses due to robbery, dacoity, burglary and theft-all put together. Unauthorized credit facilities are extended for illegal gratification such as case credit allowed against pledge of goods, hypothecation of goods against bills or against book debts. Common modus operandi are, pledging of spurious goods, inletting the value of goods, hypothecating goods to more than one bank, fraudulent removal of goods with the knowledge and connivance of in negligence of bank staff, pledging of goods belonging to a third party. Goods hypothecated to a bank are found to contain obsolete stocks packed in between goods stocks and case of shortage in weight is not uncommon.

An analysis made of cases brings out broadly the under mentioned four major elements responsible for the commission of frauds in banks.

1. Active involvement of the staff-both supervisor and clerical either independent of external elements or in connivance with outsiders.

2. Failure on the part of the bank staff to follow meticulously laid down instructions and guidelines.

3. External elements perpetuating frauds on banks by forgeries or manipulations of cheques, drafts and other instruments.

4. There has been a growing collusion between business, top banks executives, civil servants and politicians in power to defraud the banks, by getting the rules bent, regulations flouted and banking norms thrown to the winds.


A close study of any fraud in bank reveals many common basic features. There may have been negligence or dishonesty at some stage, on part of one or more of the bank employees. One of them may have colluded with the borrower. The bank official may have been putting up with the borrower’s sharp practices for a personal gain. The proper care which was expected of the staff, as custodians of banks interest may not have been taken. The bank’s rules and procedures laid down in the Manual instructions and the circulars may not have been observed or may have been deliberately ignored.

Bank frauds are the failure of the banker. It does not mean that the external frauds do not defraud banks. But if the banker is upright and knows his job, the task of defrauder will become extremely difficult, if not possible.

Detection of Frauds

Despite all care and vigilance there may still be some frauds, though their number, periodicity and intensity may be considerably reduced. The following procedure would be very helpful if taken into consideration:

1. All relevant data-papers, documents etc. Should be promptly collected. Original vouchers or other papers forming the basis of the investigation should be kept under lock and key.

2. All persons in the bank who may be knowing something about the time, place a modus operandi of the fraud should be examined and their statements should be recorded.

3. The probable order of events should thereafter be reconstructed by the officer, in his own mind.

4. It is advisable to keep the central office informed about the fraud and further developments in regard thereto.

Classification of Frauds and Action Required by Banks

The Reserve Bank of India had set-up a high level committee in 1992 which was headed by Mr. A… Ghosh, the then Dy. Governor Reserve Bank of India to inquire into various aspects relating to frauds malpractice in banks. The committee had noticed/observed three major causes for perpetration of fraud as given hereunder:

1. Laxity in observance of the laid down system and procedures by operational and supervising staff.

2. Over confidence reposed in the clients who indulged in breach of trust.

3. Unscrupulous clients by taking advantages of the laxity in observance of established, time tested safeguards also committed frauds.

In order to have uniformity in reporting cases of frauds, RBI considered the question of classification of bank frauds on the basis of the provisions of the IPC.
Given below are the Provisions and their Remedial measures that can be taken.

1. Cheating (Section 415, IPC)

Remedial Measures.

The preventive measures in respect of the cheating can be concentrated on cross-checking regarding identity, genuineness, verification of particulars, etc. in respect of various instruments as well as persons involved in encashment or dealing with the property of the bank.

2. Criminal misappropriation of property (Section 403 IPC).

Remedial Measure

Criminal misappropriation of property, presuppose the custody or control of funds or property, so subjected, with that of the person committing such frauds. Preventive measures, for this class of fraud should be taken at the level the custody or control of the funds or property of the bank generally vests. Such a measure should be sufficient, it is extended to these persons who are actually handling or having actual custody or control of the fund or movable properties of the bank.

3. Criminal breach of trust (Section 405, IPC)

Remedial Measure

Care should be taken from the initial step when a person comes to the bank. Care needs to be taken at the time of recruitment in bank as well.

4. Forgery (Section 463, IPC)

Remedial Measure

Both the prevention and detection of frauds through forgery are important for a bank. Forgery of signatures is the most frequent fraud in banking business. The bank should take special care when the instrument has been presented either bearer or order; in case a bank pays forged instrument he would be liable for the loss to the genuine costumer.

5. Falsification of accounts (Section 477A)

Remedial Measure

Proper diligence is required while filling of forms and accounts. The accounts should be rechecked on daily basis.

6. Theft (Section 378, IPC)

Remedial Measures

Encashment of stolen’ cheque can be prevented if the bank clearly specify the age, sex and two visible identify action marks on the body of the person traveler’s cheques on the back of the cheque leaf. This will help the paying bank to easily identify the cheque holder. Theft from lockers and safe deposit vaults are not easy to commit because the master-key remains with the banker and the individual key of the locker is handed over to the costumer with due acknowledgement.

7. Criminal conspiracy (Section 120 A, IPC)

In the case of State of Andhra Pradesh v. IBS Prasad Rao and Other, the accused, who were clerks in a cooperative Central Bank were all convicted of the offences of cheating under Section 420 read along with Section 120 A. all the four accused had conspired together to defraud the bank by making false demand drafts and receipt vouchers.

8. Offences relating to currency notes and banks notes (Section 489 A-489E, IPC)
These sections provide for the protection of currency-notes and bank notes from forgery. The offences under section are:

(a) Counterfeiting currency notes or banks.

(b) Selling, buying or using as genuine, forged or counterfeit currency notes or bank notes. Knowing the same to be forged or counterfeit.

(c) Possession of forged or counterfeit currency notes or bank-notes, knowing or counterfeit and intending to use the same as genuine.

(d) Making or passing instruments or materials for forging or counterfeiting currency notes or banks.

(e) Making or using documents resembling currency-notes or bank notes.

Most of the above provisions are Cognizable Offences under Section 2(c) of the Code of Criminal Procedure, 1973.


The following are the potential fraud prone areas in Banking Sector. In addition to those areas I have also given kinds of fraud that are common in these areas.

Savings Bank Accounts

The following are some of the examples being played in respect of savings bank accounts:

(a) Cheques bearing the forged signatures of depositors may be presented and paid.

(b) Specimen signatures of the depositors may be changed, particularly after the death of depositors,

(c) Dormant accounts may be operated by dishonest persons with or without collusion of bank employees, and

(d) Unauthorized withdrawals from customer’s accounts by employee of the bank maintaining the savings ledger and later destruction of the recent vouchers by them.

Current Account Fraud

The following types are likely to be committed in case of current accounts.

(a) Opening of frauds in the names of limited companies or firms by unauthorized persons;

(b) Presentation and payment of cheques bearing forged signatures;

(c) Breach of trust by the employees of the companies or firms possessing cheque leaves duly signed by the authorized signatures;

(d) Fraudulent alteration of the amount of the cheques and getting it paid either at the counter or though another bank.

Frauds In Case Of Advances

Following types may be committed in respect of advances:

(a) Spurious gold ornaments may be pledged.

(b) Sub-standard goods may be pledged with the bank or their value may be shown at inflated figures.
(c) Same goods may be hypothecated in favour of different banks.


Frauds constitute white-collar crime, committed by unscrupulous persons deftly advantage of loopholes existing in systems/procedures. The ideal situation is one there is no fraud, but taking ground realities of the nation’s environment and human nature’s fragility, an institution should always like to keep the overreach of frauds at the minimum occurrence level.

Following are the relevant sections relating to Bank Frauds

Indian Penal Code (45 of 1860)

(a) Section 23 “Wrongful gain”.-

“Wrongful gain” is gain by unlawful means of property to which the person gaining is not legally entitled.

(b) “Wrongful loss”

“Wrongful loss” is the loss by unlawful means of property to which the person losing it is legally entitled.
(c) Gaining wrongfully.

Losing wrongfully-A person is said to gain wrongfully when such person retains wrongfully, as well as when such person acquires wrongfully. A person is said to lose wrongfully when such person is wrongfully kept out of any property, as well as when such person is wrongfully deprived of property.

(d) Section 24. “Dishonestly”

Whoever does anything with the intention of causing wrongful gain to one person or wrongful loss to another person, is said to do that thing “dishonestly”.

(e) Section 28. “Counterfeit”

A person is said to “counterfeit” who causes one thing to resemble another thing, intending by means of that resemblance to practice deception, or knowing it to be likely that deception will thereby be practiced.


1. Section 408- Criminal breach of trust by clerk or servant.

2. Section 409- Criminal breach of trust by public servant, or by banker, merchant or agent.

3. Section 416- Cheating by personating

4. Section 419- Punishment for cheating by personation.


1) Section 463-Forgery

2) Section 464 -Making a false document

3) Section 465- Punishment for forgery.

4) Section 467- Forgery of valuable security, will, etc

5) Section 468- Forgery for purpose of cheating

6) Section 469- Forgery for purpose of harming reputation

7) Section 470- Forged document.

8) Section 471- Using as genuine a forged document

9) Section 477- Fraudulent cancellation, destruction, etc., of will, authority to adopt, or valuable security.

10) Section 477A- Falsification of accounts.


Issue of demand bills and notes Section 31.

Provides that only Bank and except provided by Central Government shall be authorized to draw, accept, make or issue any bill of exchange, hundi, promissory note or engagement for the payment of money payable to bearer on demand, or borrow, owe or take up any sum or sums of money on the bills, hundis or notes payable to bearer on demand of any such person


Holder’s right to duplicate of lost bill Section 45A.

1. The finder of lost bill or note acquires no title to it. The title remains with the true owner. He is entitled to recover from the true owner.

2. If the finder obtains payment on a lost bill or note in due course, the payee may be able to get a valid discharge for it. But the true owner can recover the money due on the instrument as damages from the finder.

Section 58

When an Instrument is obtained by unlawful means or for unlawful consideration no possessor or indorse who claims through the person who found or so obtained the instrument is entitled to receive the amount due thereon from such maker, acceptor or holder, or from any party prior to such holder, unless such possessor or indorse is, or some person through whom he claims was, a holder thereof in due course.

Section 85:

Cheque payable to order.

1. By this section, bankers are placed in privileged position. It provides that if an order cheque is indorsed by or on behalf of the payee, and the banker on whom it is drawn pays it in due course, the banker is discharged. He can debit his customer with the amount so paid, though the endorsement of the payee might turn out to be a forgery.

2. The claim protection under this section the banker has to prove that the payment was a payment in due course, in good faith and without negligence.

Section 87. Effect of material alteration

Under this section any alteration made without the consent of party would be void. Alteration would be valid only if is made with common intention of the party.

Section 138. Dishonour of cheque for insufficiency, etc., of funds in the account.

Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid. either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice.

Section 141(1) Offences by companies.

If the person committing an offence under Section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.


Security implies sense of safety and of freedom from danger or anxiety. When a banker takes a collateral security, say in the form of gold or a title deed, against the money lent by him, he has a sense of safety and of freedom from anxiety about the possible non-payment of the loan by the borrower. These should be communicated to all strata of the organization through appropriate means. Before staff managers should analyze current practices. Security procedure should be stated explicitly and agreed upon by each user in the specific environment. Such practices ensure information security and enhance availability. Bank security is essentially a defense against unforced attacks by thieves, dacoits and burglars.


A large part of banks security depends on social security measures. Physical security measures can be defined as those specific and special protective or defensive measures adopted to deter, detect, delay, defend and defeat or to perform any one or more of these functions against culpable acts, both covert and covert and acclamations natural events. The protective or defensive, measures adopted involve construction, installation and deployment of structures, equipment and persons respectively.

The following are few guidelines to check malpractices:

1. To rotate the cash work within the staff.

2. One person should not continue on the same seat for more than two months.

3. Daybook should not be written by the Cashier where an other person is available to the job

4. No cash withdrawal should be allowed within passbook in case of withdrawal by pay order.

5. The branch manager should ensure that all staff members have recorder their presence in the attendance registrar, before starting work.

Execution of Documents

1. A bank officer must adopt a strict professional approach in the execution of documents. The ink and the pen used for the execution must be maintained uniformly.

2. Bank documents should not be typed on a typewriter for execution. These should be invariably handwritten for execution.

3. The execution should always be done in the presence of the officer responsible for obtain them,
4. The borrowers should be asked to sign in full signatures in same style throughout the documents.

5. Unless there is a specific requirement in the document, it should not be got attested or witnessed as such attestation may change the character of the instruments and the documents may subject to ad volrem stamp duty.

6. The paper on which the bank documents are made should be pilfer proof. It should be unique and available to the banks only.

7. The printing of the bank documents should have highly artistic intricate and complex graphics.

8. The documents executed between Banker and Borrowers must be kept in safe custody,


1. Section 91 of IPC shall be amended to include electronic documents also.

2. Section 92 of Indian Evidence Act, 1872 shall be amended to include commuter based communications

3. Section 93 of Bankers Book Evidence Act, 1891 has been amended to give legal sanctity for books of account maintained in the electronic form by the banks.

4. Section 94 of the Reserve Bank of India Act, 1939 shall be amended to facilitate electronic fund transfers between the financial institutions and the banks. A new clause (pp) has been inserted in Section 58(2).


In the banking and financial sectors, the introduction of electronic technology for transactions, settlement of accounts, book-keeping and all other related functions is now an imperative. Increasingly, whether we like it or not, all banking transactions are going to be electronic. The thrust is on commercially important centers, which account for 65 percent of banking business in terms of value. There are now a large number of fully computerized branches across the country.

A switchover from cash-based transactions to paper-based transactions is being accelerated. Magnetic Ink character recognition clearing of cheques is now operational in many cities, beside the four metro cities. In India, the design, management and regulation of electronically-based payments system are becoming the focus of policy deliberations. The imperatives of developing an effective, efficient and speedy payment and settlement systems are getting sharper with introduction of new instruments such as credit cards, telebanking, ATMs, retail Electronic Funds Transfer (EFT) and Electronic Clearing Services (ECS). We are moving towards smart cards, credit and financial Electronic Data Interchange (EDI) for straight through processing.

Financial Fraud (Investigation, Prosecution, Recovery and Restoration of property) Bill, 2001

Further the Financial Fraud (Investigation, Prosecution, Recovery and Restoration of property) Bill, 2001 was introduced in Parliament to curb the menace of Bank Fraud. The Act was to prohibit, control, investigate financial frauds; recover and restore properties subject to such fraud; prosecute for causing financial fraud and matters connected therewith or incidental thereto.

Under the said act the term Financial Fraud has been defined as under:

Section 512 – Financial Fraud

Financial frauds means and includes any of the following acts committed by a person or with his connivance, or by his agent, in his dealings with any bank or financial institution or any other entity holding public funds;

1. The suggestion, as a fact, of that which is not true, by one who does not believe it to be true;

2. The active concealment of a fact by one having knowledge or belief of the fact;

3. A promise made with out any intention of performing it;

4. Any other act fitted to deceive;

5. Any such act or omission as the law specially declares to be fraudulent.
Provided that whoever acquires, possesses or transfers any proceeds of financial fraud or enters into any transaction which is related to proceeds of fraud either directly or indirectly or conceals or aids in the concealment of the proceeds of financial fraud, commits financial fraud.

513(a) – Punishment for Financial Fraud

Whoever commits financial fraud shall be: (a) Punished with rigorous imprisonment for a term, which may extend to seven years and shall also be liable to fine.

(b)Whoever commits serious financial fraud shall be punished with rigorous imprisonment for a term which may extend to ten years but shall not be less than five years and shall also be liable for fine up to double the amount involved in such fraud.

Provided that in both (a) and (b) all funds, bank accounts and properties acquired using such funds subjected to the financial fraud as may reasonably be attributed by the investigating agency shall be recovered and restored to the rightful owner according to the procedure established by law.


The Indian Banking Industry has undergone tremendous growth since nationalization of 14 banks in the year 1969. There has an almost eight times increase in the bank branches from about 8000 during 1969 to mote than 60,000 belonging to 289 commercial banks, of which 66 banks are in private sector.

It was the result of two successive Committees on Computerization (Rangarajan Committee) that set the tone for computerization in India. While the first committee drew the blue print in 1983-84 for the mechanization and computerization in banking industry, the second committee set up in 1989 paved the way for integrated use of telecommunications and computers for applying technogical breakthroughs in banking sector.

However, with the spread of banking and banks, frauds have been on a constant increase. It could be a natural corollary to increase in the number of customers who are using banks these days. In the year 2000 alone we have lost Rs 673 crores in as many as 3,072 number of fraud cases. These are only reported figures. Though, this is 0.075% of Rs 8,96,696 crores of total deposits and 0.15% of Rs 4,44,125 crores of loans & advances, there are any numbers of cases that are not reported. There were nearly 65,800 bank branches of a total of 295 commercial banks in India as on June 30, 2001 reporting a total of nearly 3,072 bank fraud cases. This makes nearly 10.4 frauds per bank and roughly 0.47 frauds per branch.

An Expert Committee on Bank Frauds (Chairman: Dr.N.L.Mitra) submitted its Report to RBI in September 2001. The Committee examined and suggested both the preventive and curative aspects of bank frauds.

The important recommendations of the Committee include:

o A need for including financial fraud as a criminal offence;

o Amendments to the IPC by including a new chapter on financial fraud;

o Amendments to the Evidence Act to shift the burden of proof on the accused person;

o Special provision in the Cr. PC for properties involved in the Financial Fraud.

o Confiscating unlawful gains; and preventive measures including the development of Best Code Procedures by banks and financial institutions.

Thus it can be concluded that following measures should necessarily be adopted by the Ministry of Finance in order to reduce cases of Fraud.

o There must be a Special Court to try financial fraud cases of serious nature.

o The law should provide separate structural and recovery procedure. Every bank must have a domestic enquiry officer to enquire about the civil dimension of fraud.

o A fraud involving an amount of ten crore of rupees and above may be considered serious and be tried in the Special Court.

The Twenty-ninth Report of the Law Commission had dealt some categories of crimes one of which is “offences calculated to prevent and obstruct the economic development of the country and endanger its economic health.” Offences relating to Banking Fraud will fall under this category. The most important feature of such offences is that ordinarily they do not involve an individual direct victim. They are punishable because they harm the whole society. It is clear that money involved in Bank belongs to public. They deposit there whole life’ security in Banks and in case of Dacoity or Robbery in banks the public will be al lost. Thus it is important that sufficient efforts should be taken in this regard.

There exists a new kind of threat in cyber world. Writers are referring it as “Salami Attack” under this a special software is used for transferring the amount from the account of the individual. Hence the culprits of such crimes should be found quickly and should be given strict punishment. Moreover there is requirement of more number of IT professionals who will help in finding a solution against all these security threats.

Structural Changes in Banks for More Customer Delight

Top global banks and financial institutions are adopting new technologies to streamline their internal operations and align their resources to offer customers the best & innovative banking services. In order to provide customized and revolutionized banking solutions to the global businesses, banks first need to refine their work processes and take the crude out of it. This will help them to indulge in the big quotients like mergers and acquisitions, private placements, and bankruptcy and restructuring deals and providing sophisticated business banking to the clients. Modern banking and financial institutions rely on the top-end technology products in order to rapidly share information with deal partners to make sure successful operations in a more secure way.

Technology adoption simply drives efficiencies when it comes to data management, handling and accessing. With the help of latest banking software solutions banks can easily manage, evaluate and share information related to complex banking and financial instruments while maintaining complete security and control. They are also working on the better security measures for better financial transactions.

New banking applications and software solutions offers immense capabilities to the banking management that certainly help accelerate all operations. With the help of software applications banks can control the deal processes and handle critical information with due diligence. These software solutions also support sourcing of newly emerging opportunities so that banks can provide more invaluable banking solutions to the customers with lesser risk of frauds. They are also adopting secure web-based and mobile access solutions for the customers through these high-end technological solutions only.

Banks are also accelerating their operation efforts through various means like:

1. Speed up internal (banking and finance related) reforms
2. Access innumerable set of information to extract quality information
3. Find information easily, effectively and shorten waiting period of customers

Banks and financial institutions are also busy in collecting data for business insights and transforming it into activity for further banking transactions which will result in risk mitigation and better ROI. In this way they can respond more effectively to the customers’ queries. It also ensures transparency and consolidating of information on a single platform only. It enables tracking and reporting of banking information in a secure and sensitive manner.

All these measures help banks to adopt fast changing banking technology and provide the best banking solutions to the private organizations. It is also helping them to connect with their customers in a more personal way. In fact, banks have empowered themselves to effortlessly offer business loans, corporate banking services, insurance, investments, mobile banking, internet banking savings and checking accounts as well as financial advice to the businesses through the adoption of newly emerging technologies.