Any financial institution that accepts deposits from the people and gives credit is called bank. Banks perform through capital markets either directly or indirectly. Banking evolved in 14th century in Italy. In most countries banks are highly regulated due to their influence on national economies and the financial system. Many countries have come up with a system called fractional reserve banking wherein banks have liquid assets which is equal to a portion of their current liabilities. In addition to ensure liquidity, banks need to have a minimum capital requirements based on an international capital standards. Vietnam bank scandal in 2016 has attracted lot of attention world wide.
The definition of a bank varies from country to country. Banking business is the business where the funds are received on current, savings or deposit accounts; it also includes paying and collecting cheques drawn by customers, and making advances to the customers. Banks receives money from the general public on their current, savings and deposit account which is payable when demanded.
With the introduction of internet banking, electronic Transfer of funds, direct debit and credit etc the amount transferred through cheque has lost its primacy in most banking systems as a payment instrument. Thus many legal theorists have suggested that the definition of cheque should be broadened to include various financial institutions that handle current accounts for their customers and enable customers to pay, even if they do not pay and collect cheques. Customers can also make the payment by different payment methods such as Wire transfer, ATMs, Automated clearing house, Electronic transfer etc. Banks are the payment agents who conduct various activities for their clients such as collecting cheques, granting loans, transferring money, paying cheques drawn by the customers etc.
Banks borrow money by accepting funds on savings and current accounts, also by issuing debt securities as term deposit such as bonds and banknotes and they lend money by making advances to customers on current and savings accounts, by giving instalment loans, and by investing in debt securities which are marketable and other forms of money lending. Other activities undertaken by banks are foreign exchange trading, commodity trading, trading in equities, , investment banking, private banking, personal banking, corporate banking transaction banking, insurance, consumer finance, and money market trading. By accepting loans bank can create more money. New loans lead to new deposits in the system. Thus the overall supply of money increases when the loans are landed and money supply is reduced when they are repaid. If all the banks increase their lending together, new deposits are expected to return to them and the total amount of money in the economy will eventually increase. But bank should be cautious of excessive or risky lending which can cause borrowers to default. Thus banks should have a proper background check of their clients before lending loans to them. Also the amount of loan should be decided accordingly.
Over the years fraud in banks have increase substantially. In Vietnam bank scandal property tycoon Pham Cong Danh has done bank related spam also. Bank fraud is the use of illegal means to obtain money, assets, or any other property which is owned by the banks, or to obtain money from depositors by fraudulently practices. Bank fraud is a criminal offence. It is sometimes considered a white-collar crime as it is an action that employs a scheme or artifice, as opposed to bank robbery or theft.
Fraud in other words can be explained as: Whoever knowingly executes, or attempts to execute, a system or pretence. To trick a financial institution; or to obtain any of the money, funds, credits, assets and securities or it can be any other good property owned by or under the control of a financial institution, by means of false or fraudulent practices.
The person committing a fraud can be fined not more than $1,000,000 or can be imprisoned not more than 30 years, or both.
Types of bank fraud are Accounting Fraud. In such case example at Vietnam Commercial Bank the company’s used fraudulent or wrong or fake practices just to alter the bookkeeping to fulfil and show high profits each year whereas the company might be incurring losses. This is done to hide serious financial problems and to inflate the worth of company’s assets and profit records.
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