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2007-10-25T04:59:00.001-07:00

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2007-10-25T04:43:00.000-07:00

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2007-09-23T11:17:00.000-07:00

Banking Articles and Tips

Mortgage

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Too Many New Credit Cards, Your Credit Score, and Mortgages

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Home Equity Loans Are Great Tools for 100% Home Financing

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2007-08-30T01:00:00.001-07:00

2007-08-30T00:55:00.000-07:00

Debit and credit are formal bookkeeping and accounting terms that have opposite meanings and come from Latin. Debit comes from debere, which means "to owe". The Latin debitum means "debt". Credit comes from the Latin word credere, which means "to believe".

It is more common to use the terms in the plural, Debits and Credits.

Debit is abbreviated as Dr., while credit is abbreviated as Cr.

"Debit" also refers to the left side of a general ledger account, while "Credit" refers to the right side. Due to the proliferation of bookkeeping and accounting computer software, it is now common for Debits to be mistakenly treated as positive values and Credits to be mistakenly treated as negative values. Positive and negative values allow for mathematical calculations in software programs. This has led to confusion as people do not understand why a sales amount is treated as a negative value, a credit; and an expense amount is treated as a positive value, a debit. If the value of the debits is greater than the value of the credits, then the balance on the account is a debit and should not be described as a positive value balance, but should be described as an account with a debit balance.

Debits and credits are neither positive nor negative values. The balance on an account is either a debit or a credit, not a positive or a negative value.

Dividend, Expense, Asset and Losses (abbreviated as "D-E-A-L") accounts increase in value when debited and decrease when credited, whereas Gains, Income, Revenues, Liability and Stockholder's (Owner's) equity (abbreviated as "G-I-R-L-S") accounts decrease in value when debited and increase when credited.

This distinction is somewhat counterintuitive, until the nature of those accounts is more closely scrutinized. For example, revenue is coded as a credit. After recording a day's sales invoices, the company will have credited a certain amount in revenue, but the customer's ledger will hold a debit balance being the amount of the unpaid invoices. To fully understand this see Double-entry bookkeeping system where Debits and Credits form the core of that system.

For instance, the journal entry for paying the telephone bill might look like this:

Description	Debits	Credits
Phone expense	$200
Cash		$200

The telephone company would record the exact same transaction (from their side) like this:

Description	Debits	Credits
Cash	$200
Revenue		$200

Confusion also arises where the term debit is also informally referred to as a "charge" as in a charge card or a debit card and that credit is a limit set or an amount granted by a company to its customers as in a credit limit. They are used in a different context in these two cases.

It is often assumed that a debit decreases a balance, and a credit increases it, because this is how the terms are shown on bank statements and using a debit card decreases the balance in one's bank account. However, this is because bank statements are traditionally written from the bank's perspective, where the customer's account is a liability. By withdrawing money, the customer is decreasing the bank's liability. Since liability accounts normally have a credit balance, the withdrawal of cash from a banking account is reflected on the bank's balance sheet as a debit.

2007-08-26T23:13:00.000-07:00

A credit card is a system of payment named after the small plastic card issued to users of the system. A credit card is different from a debit card in that it does not remove money from the user's account after every transaction. In the case of credit cards, the issuer lends money to the consumer (or the user). It is also different from a charge card (though this name is sometimes used by the public to describe credit cards), which requires the balance to be paid in full each month. In contrast, a credit card allows the consumer to 'revolve' their balance, at the cost of having interest charged. Most credit cards are the same shape and size, as specified by the ISO 7810 standard.

How credit cards work

An example of the front of a typical credit card:

Issuing bank logo
EMV chip
Hologram
Card number
Card brand logo
Expiry Date
Cardholder's name

An example of the reverse side of a typical credit card:

A user is issued credit after an account has been approved by the credit provider, and is given a credit card, with which the user will be able to make purchases from merchants accepting that credit card up to a pre-established credit limit. Often a general bank issues the credit, but sometimes a captive bank created to issue a particular brand of credit card, such as Chase Credit Card, Wells Fargo or Bank of America issues the credit.

When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates their consent to pay, by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a Personal identification number (PIN). Also, many merchants now accept verbal authorizations via telephone and electronic authorization using the Internet, known as a Card not present (CNP) transaction.

Electronic verification systems allow merchants to verify that the card is valid and the credit card customer has sufficient credit to cover the purchase in a few seconds, allowing the verification to happen at time of purchase. The verification is performed using a credit card payment terminal or Point of Sale (POS) system with a communications link to the merchant's acquiring bank. Data from the card is obtained from a magnetic stripe or chip on the card; the latter system is in the United Kingdom commonly known as Chip and PIN, but is more technically an EMV card.

Other variations of verification systems are used by eCommerce merchants to determine if the user's account is valid and able to accept the charge. These will typically involve the cardholder providing additional information, such as the security code printed on the back of the card, or the address of the cardholder.

Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, any outstanding fees, and the total amount owed. After receiving the statement, the cardholder may dispute any charges that he or she thinks are incorrect (see Fair Credit Billing Act for details of the US regulations). Otherwise, the cardholder must pay a defined minimum proportion of the bill by a due date, or may choose to pay a higher amount up to the entire amount owed. The credit provider charges interest on the amount owed (typically at a much higher rate than most other forms of debt). Some financial institutions can arrange for automatic payments to be deducted from the user's bank accounts.

Credit card issuers usually waive interest charges if the balance is paid in full each month, but typically will charge full interest on the entire outstanding balance from the date of each purchase if the total balance is not paid.

For example, if a user had a $1,000 outstanding balance and pays it in full, there would be no interest charged. If, however, even $1.00 of the total balance remained unpaid, interest would be charged on the $1 from the date of purchase until the payment is received. The precise manner in which interest is charged is usually detailed in a cardholder agreement which may be summarized on the back of the monthly statement. The general calculation formula most financial institutions use to determine the amount of interest to be charged is APR/100 x ADB/365 x number of days revolved. Take the Annual percentage rate (APR) and divide by 100 then multiply to the amount of the average daily balance divided by 365 and then take this total and multiply by the total number of days the amount revolved before payment was made on the account. Financial institutions refer to interest charged back to the original time of the transaction and up to the time a payment was made, if not in full, as RRFC or residual retail finance charge. Thus after an amount has revolved and a payment has been made that the user of the card will still receive interest charges on their statement after paying the next statement in full (in fact the statement may only have a charge for interest that collected up until the date the full balance was paid...i.e. when the balance stopped revolving).^[1]

The credit card may simply serve as a form of revolving credit, or it may become a complicated financial instrument with multiple balance segments each at a different interest rate, possibly with a single umbrella credit limit, or with separate credit limits applicable to the various balance segments. Usually this compartmentalization is the result of special incentive offers from the issuing bank, either to encourage balance transfers from cards of other issuers, or to encourage more spending on the part of the customer. In the event that several interest rates apply to various balance segments, payment allocation is generally at the discretion of the issuing bank, and payments will therefore usually be allocated towards the lowest rate balances until paid in full before any money is paid towards higher rate balances. Interest rates can vary considerably from card to card, and the interest rate on a particular card may jump dramatically if the card user is late with a payment on that card or any other credit instrument, or even if the issuing bank decides to raise its revenue. As the rates and terms vary, services have been set up allowing users to calculate savings available by switching cards, which can be considerable if there is a large outstanding balance (see external links for some on-line services).

Because of intense competition in the credit card industry, credit providers often offer incentives such as frequent flier points, gift certificates, or cash back (typically up to 1 percent based on total purchases) to try to attract customers to their program.

Low interest credit cards or even 0% interest credit cards are available. The only downside to consumers is that the period of low interest credit cards is limited to a fixed term, usually between 6 and 12 months after which a higher rate is charged. However, services are available which alert credit card holders when their low interest period is due to expire. Most such services charge a monthly or annual fee.

Grace period

A credit card's grace period is the time the customer has to pay the balance before interest is charged to the balance. Grace periods vary, but usually range from 20 to 30 days depending on the type of credit card and the issuing bank. Some policies allow for reinstatement after certain conditions are met. Usually, if a customer is late paying the balance, finance charges will be calculated and the grace period does not apply. Finance charge(s) incurred depends on the grace period and balance, with most credit cards there is no grace period if there's any outstanding balance from the previous billing cycle or statement (ie. interest is applied on both the previous balance and new transactions). However, there are some credit cards that will only apply finance charge on the previous or old balance, excluding new transactions.

[edit] The merchant's side

An example of street markets accepting credit cards

For merchants, a credit card transaction is often more secure than other forms of payment, such as checks, because the issuing bank commits to pay the merchant the moment the transaction is authorized, regardless of whether the consumer defaults on their credit card payment (except for legitimate disputes, which are discussed below, and can result in charge backs to the merchant). In most cases, cards are even more secure than cash, because they discourage theft by the merchant's employees.

For each purchase, the bank charges a commission (discount fee), to the merchant for this service and there may be a certain delay before the agreed payment is received by the merchant. In addition, a merchant may be penalized or have their ability to receive payment using that credit card restricted if there are too many cancellations or reversals of charges as a result of disputes.

In some countries, like the Nordic countries, banks guarantee payment on stolen cards only if an ID card is checked and the ID card number/civic registration number is written down on the receipt together with the signature. In these countries merchants therefore usually ask for ID. Non-Nordic citizens, who are unlikely to possess a Nordic ID card or driving license, will instead have to show their passport, and the passport number will be written down on the receipt, sometimes together with other information. Some shops use the card's PIN code for identification, and in that case showing an ID card is not necessary.

This process involves the following parties:

Cardholder: the owner of the card used to make a purchase

Merchant: the business accepting credit card payments for products or services sold to the cardholder

Acquirer: the financial institution or other organization that provides card processing services to the merchant

Card association: a network such as VISA or MasterCard (and others) that acts as a gateway between the acquirer and issuer for authorizing and funding transactions

Issuer: the financial institution or other organization that issued the credit card to the cardholder

Affinity partner: some institutions lend their name to an issuer to attract customers that have a strong relationship with that institution, and get paid a fee or a percentage of the balance for each card issued using their name. A typical affinity partner will be a sports team or a university

The flow of information and money between these parties—always through the card associations — is known as the interchange, and it consists of a few steps:

Authorization

When the cardholders pays for the purchase the merchant performs some risk assessment and may submit the transaction to the acquirer for authorization. The acquirer verifies with the issuer—almost instantly—that the card number and transaction amount are both valid, and informs the merchant on how to proceed. The issuer may provisionally debit the funds from the cardholder's credit account at this stage.

Batching

After the transaction is authorized it is then stored in a batch, which the merchant sends to the acquirer later to receive payment (usually at the end of the day).

Clearing and settlement

The acquirer sends the transactions in the batch through the card association, which debits the issuers for payment and credits the acquirer. In effect, the issuers pay the acquirer for the transactions.

Funding

Once the acquirer has been paid, the merchant receives payment. The amount the merchant receives is equal to the transaction amount minus the discount rate, which is the fee the merchant pays the acquirer for processing the transaction.

The entire process, from authorization to funding, usually takes about 2-7 business days. However, many merchant card processors offer next-day deposits to customers subject to type of banking account.

In the event of a chargeback (when there's an error in processing the transaction or the cardholder disputes the transaction), the issuer returns the transaction to the acquirer for resolution. The acquirer then forwards the chargeback to the merchant, who must either accept the chargeback or contest it.

Secured credit cards

A secured credit card is a type of credit card secured by a deposit account owned by the cardholder. Typically, the cardholder must deposit between 100% and 200% of the total amount of credit desired. Thus if the cardholder puts down $1000, he or she will be given credit in the range of $500–$1000. In some cases, credit card issuers will offer incentives even on their secured card portfolios. In these cases, the deposit required may be significantly less than the required credit limit, and can be as low as 10% of the desired credit limit. This deposit is held in a special savings account. Credit card issuers offer this as they have noticed that delinquencies were notably reduced when the customer perceives he has something to lose if he doesn't repay his balance.

The cardholder of a secured credit card is still expected to make regular payments, as he or she would with a regular credit card, but should he or she default on a payment, the card issuer has the option of recovering the cost of the purchases paid to the merchants out of the deposit. The advantage of the secured card for an individual with negative or no credit history is that most companies report regularly to the major credit bureaus. This allows for rebuilding of positive credit history.

Although the deposit is in the hands of the credit card issuer as security in the event of default by the consumer, the deposit will not be debited simply for missing one or two payments. Usually the deposit is only used as an offset when the account is closed, either at the request of the customer or due to severe delinquency (150 to 180 days). This means that an account which is less than 150 days delinquent will continue to accrue interest and fees, and could result in a balance which is much higher than the actual credit limit on the card. In these cases the total debt may far exceed the original deposit and the cardholder not only forfeits their deposit but is left with an additional debt.

Most of these conditions are usually described in a cardholder agreement which the cardholder signs when their account is opened.

Secured credit cards are an option to allow a person with a poor credit history or no credit history to have a credit card which might not otherwise be available. They are often offered as a means of rebuilding one's credit. Secured credit cards are available with both Visa and MasterCard logos on them. Fees and service charges for secured credit cards often exceed those charged for ordinary non-secured credit cards, however, for people in certain situations, (for example, after charging off on other credit cards, or people with a long history of delinquency on various forms of debt), secured cards can often be less expensive in total cost than unsecured credit cards, even including the security deposit.

Prepaid credit cards

A prepaid credit card is not really a credit card, as no credit is offered by the card issuer: the card-holder spends money which has been "stored" via a prior deposit by the card-holder or someone else, such as a parent or employer. However, it carries a credit-card brand (Visa or MasterCard) and can be used in similar ways. As more consumers require a suitable solution to rebuilding credit, recent changes have allowed some credit card companies to offer pre-paid credit cards to help rebuild credit. They are hard to find and have higher APR fees and higher interest costs.

After purchasing the card, the cardholder loads it with any amount of money and then uses the card to spend the money. Prepaid cards can be issued to minors since there is no credit line involved. The main advantage over secured credit cards is that you are not required to come up with $500 or more to open an account. Also most secured credit cards still charge you interest even though you are not actually "borrowing" any money. With prepaid credit cards you are not charged any interest but you are often charged monthly fees after an arbitrary time period. Many other fees also usually apply to a prepaid card.^[2]

Prepaid credit cards are often marketed to teenagers for shopping online without having their parents complete the transaction.

Because of the many fees that apply to obtaining and using credit-card-branded prepaid cards, the Financial Consumer Agency of Canada describes them as "an expensive way to spend your own money"^[3]. The agency publishes a booklet, "Pre-paid cards"^[4], which explains the advantages and disadvantages of this type of prepaid card.

Features

As well as convenient, accessible credit, credit cards offer consumers an easy way to track expenses, which is necessary for both monitoring personal expenditures and the tracking of work-related expenses for taxation and reimbursement purposes. Credit cards are accepted worldwide, and are available with a large variety of credit limits, repayment arrangement, and other perks (such as rewards schemes in which points earned by purchasing goods with the card can be redeemed for further goods and services or credit card cashback).

Some countries, such as the United States, the United Kingdom, and France, limit the amount for which a consumer can be held liable due to fraudulent transactions as a result of a consumer's credit card being lost or stolen.

Security

A smart card, combining credit card and debit card properties. The 3 by 5 mm security chip embedded in the card is shown enlarged in the inset. The gold contact pads on the card enable electronic access to the chip.

The low security of the credit card system presents countless opportunities for fraud. This opportunity has created a huge black market in stolen credit card numbers, which are generally used quickly before the cards are reported stolen.

The goal of the credit card companies is not to eliminate fraud, but to "reduce it to manageable levels"^[5], such that the total cost of both fraud and fraud prevention is minimized^{[citation needed]}. This implies that high-cost low-return fraud prevention measures will not be used if their cost exceeds the potential gains from fraud reduction.

Most internet fraud is done through the use of stolen credit card information which is obtained in many ways, the simplest being copying information from retailers, either online or offline. Despite efforts to improve security for remote purchases using credit cards, systems with security holes are usually the result of poor implementations of card acquisition by merchants. For example, a website that uses SSL to encrypt card numbers from a client may simply email the number from the webserver to someone who manually processes the card details at a card terminal. Naturally, anywhere card details become human-readable before being processed at the acquiring bank, a security risk is created. However, many banks offer systems such as ClearCommerce, where encrypted card details captured on a merchant's webserver can be sent directly to the payment processor.

Controlled Payment Numbers are another option for protecting one's credit card number: they are "alias" numbers linked to one's actual card number, generated as needed, valid for a relatively short time, with a very low limit, and typically only valid with a single merchant.

The Federal Bureau of Investigation and U.S. Postal Inspection Service are responsible for prosecuting criminals who engage in credit card fraud in the United States, but they do not have the resources to pursue all criminals. In general, federal officals only prosecute cases exceeding US $5000 in value. Three improvements to card security have been introduced to the more common credit card networks but none has proven to help reduce credit card fraud so far. First, the on-line verification system used by merchants is being enhanced to require a 4 digit Personal Identification Number (PIN) known only to the card holder. Second, the cards themselves are being replaced with similar-looking tamper-resistant smart cards which are intended to make forgery more difficult. The majority of smartcard (IC card) based credit cards comply with the EMV (Europay MasterCard Visa) standard. Third, an additional 3 or 4 digit code is now present on the back of most cards, for use in "card not present" transactions. See CVV2 for more information.

The way credit card owners pay off their balances has a tremendous effect on their credit history. All the information is collected by credit bureaus. The credit information stays on the credit report, depending on the jurisdiction and the situation, for 1, 2, 5, 7 or even 10 years after the debt is repaid.

Profits and losses

In recent times, credit card portfolios have been very profitable for banks, largely due to the booming economy of the late nineties. However, in the case of credit cards, such high returns go hand in hand with risk, since the business is essentially one of making unsecured (uncollateralized) loans, and thus dependent on borrowers not to default in large numbers.

Costs

Credit card issuers (banks) have several types of costs:

Interest expenses

Banks generally borrow the money they then lend to their customers. As they receive very low-interest loans from other firms, they may borrow as much as their customers require, while lending their capital to other borrowers at higher rates. If the card issuer charges 15% on money lent to users, and it costs 5% to borrow the money to lend, and the balance sits with the cardholder for a year, the issuer earns 10% on the loan. This 5% difference is the "interest expense" and the 10% is the "net interest margin".

Operating costs

This is the cost of running the credit card portfolio, including everything from paying the executives who run the company to printing the plastics, to mailing the statements, to running the computers that keep track of every cardholder's balance, to taking the many phone calls which cardholders place to their issuer, to protecting the customers from fraud rings. Depending on the issuer, marketing programs are also a significant portion of expenses.

Charge offs

When a consumer becomes severely delinquent on a debt (often at the point of six months without payment), the creditor may declare the debt to be a charge-off. It will then be listed as such on the debtor's credit bureau reports (Equifax, for instance, lists "R9" in the "status" column to denote a charge-off.) It is one of the worst possible items to have on your file. The item will include relevant dates, and the amount of the bad debt.^[6]

A charge-off is considered to be "written off as uncollectable." To banks, bad debts and even fraud are simply part of the cost of doing business.

However, the debt is still legally valid, and the creditor can attempt to collect the full amount. This includes contacts from internal collections staff, or more likely, an outside collection agency. If the amount is large (generally over $1500 - $2000), there is the possibility of a lawsuit or arbitration.

In the US, as the charge off number climbs or becomes erratic, officials from the Federal Reserve take a close look at the finances of the bank and may impose various operating strictures on the bank, and in the most extreme cases, may close the bank entirely.

Rewards

Qantas Frequent Flyer co-branded credit cards

Many credit card customers receive rewards, such as frequent flier points, gift certificates, or cash back as an incentive to use the card. Rewards are generally tied to purchasing an item or service on the card, which may or may not include balance transfers, cash advances, or other special uses. Depending on the type of card, rewards will generally cost the issuer between 0.25% and 2.0% of the spend. Networks like Visa or MasterCard have increased their fees to allow issuers to fund their rewards system. However, most rewards points are accrued as a liability on a company's balance sheet and expensed at the time of reward redemption. As a result, some issuers discourage redemption by forcing the cardholder to call customer service for rewards. On their servicing website, redeeming awards is usually a feature that is very well hidden by the issuers. Others encourage redemption for lower cost merchandise; instead of an airline ticket, which is very expensive to an issuer, the cardholder may be encouraged to redeem for a gift certificate instead. With a fractured and competitive environment, rewards points cut dramatically into an issuer's bottom line, and rewards points and related incentives must be carefully managed to ensure a profitable portfolio. There is a case to be made that rewards not redeemed should follow the same path as gift cards that are not used: in certain states the gift card breakage goes to the state's treasury. The same could happen to the value of points or cash not redeemed.

Fraud

Where a card is stolen, or an unauthorized duplicate made, most card issuers will refund some or all of the charges that the customer has received for things they did not buy. These refunds will, in some cases, be at the expense of the merchant, especially in mail order cases where the merchant cannot claim sight of the card. In several countries, merchants will lose the money if no ID card was asked for, therefore merchants usually require ID card in these countries.

The cost of fraud is high; in the UK in 2004 it was over £500 million.^[7] Credit card companies generally guarantee the merchant will be paid on legitimate transactions regardless of whether the consumer pays their credit card bill.

"Soft fraud" is fraud committed by the customer himself: getting a card and using it with no intention ever to repay the balance. Such customers are called "diabolicals" by the credit card companies, that try to avoid them at all cost.

Revenues

Offsetting costs are the following revenues:

Interchange fees

Interchange fees are charged by the merchant's acquirer to a card-accepting merchant as component of the so-called merchant discount rate (also referred to as "merchant service fee"). The merchant pays a merchant discount fee that is typically 2 to 3 percent (this is negotiated, but will vary not only from merchant to merchant, but also from card to card, with business cards and rewards cards generally costing the merchants more to process), which is why some merchants prefer cash, debit cards, or even cheques. The majority of this fee, called the interchange fee, goes to the issuing bank, but parts of it go to the processing network, the card association (American Express, Visa, MasterCard, etc.), and the merchant's acquirer. With a corporate card, the interchange is also often shared by the company in whose name the card is issued as an incentive to use that issuer's card instead of someone else's.

The interchange fee that applies to a particular merchant is a function of many variables including the type of merchant, the merchant's average transaction amount, whether the cards are physically present, if the card's magnetic stripe is read or if the transaction is hand-keyed or entered on a website, the specific type of card, when the transaction is settled, the authorized and settled transaction amounts, etc. For a typical credit card issuer, interchange fee revenues may represent about fifteen percent of total revenues, but this will vary greatly with the type of customers represented in their portfolio. Customers who carry high balances may generate low interchange revenue due to credit line limitations, while customers who use their cards for business and spend hundreds of thousands of dollars a year on their cards while paying off balances every month will have very healthy interchange revenues.

Contract terms

Credit card issuers reserve the right to change the terms of the contract at any time, even for customers who maintain a perfect payment record.

Industry jargon for customer categories

Customers who do not pay in full the amount owed on their monthly statement (the "balance") by the due date (that is, at the end of the "grace period") and are not in a promotional period owe interest ("finance charges") are known in the industry as "revolvers." Those who pay in full (pay the entire balance) are known in the industry as "transactors," "convenience users," or "deadbeats." Those that shift usage of their credit cards or transfer balances frequently are known in the industry as "rate surfers", "rate tarts" or "gamers."

Interest on outstanding balances

Interest charges vary widely from card issuer to card issuer. Often, there are "teaser" rates in effect for initial periods of time (as low as zero percent for, say, six months), whereas regular rates can be as high as 40 percent. In the U.S. there's no federal limit on the interest or late fees credit card issuers can charge; the interest rates are set by the states, with some states, like South Dakota, having no ceiling on interest rates and fees, inviting some banks to establish their credit card operations there. Other states, like Delaware, have very weak usury laws. The teaser rate no longer applies if the customer doesn't pay his bills on time, and is replaced by a penalty interest rate (for example, 24.99%) that applies retroactively. So customers should be wary of these offers, that usually contain some traps. Cash withdrawals will never carry the teaser rate, for example.

Note that for some banks, even if you had paid it off an outstanding balance along with interest fees, for the next two months, they will also charge you interest rates for anything you had purchased.

Fees charged to customers

The major fees are for:

Late payments
Charges that result in exceeding the credit limit on the card (whether done deliberately or by mistake), called overlimit fees
Returned cheque fees or payment processing fees (eg phone payment fee)
Cash advances and convenience cheques (often 3% of the amount)^[8]. Transactions in a foreign currency (as much as 3% of the amount). A few financial institutions do not charge a fee for this.
Membership fees (annual or monthly), sometimes a percentage of the credit limit. Issuers love monthly fees as it allows them to charge substantial amounts without the customer realizing how expensive the charge really is (a monthly amount is perceived as half the price of the equivalent annual fee)^{[citation needed]}
Foreign Exchange Premium

Neutral consumer resources

Canada

The Government of Canada maintains a database of the fees, features, interest rates and reward programs of nearly 200 credit cards available in Canada. This database is updated on a quarterly basis with information supplied by the credit card issuing companies. Information in the database is published every quarter on the website of the Financial Consumer Agency of Canada (FCAC).

Information in the database is published in two formats. It is available in PDF comparison tables that break down the information according to type of credit card, allowing the reader to compare the features of, for example, all the student credit cards in the database.

The database also feeds into an interactive tool on the FCAC website.[1] The interactive tool uses several interview-type questions to build a profile of the user's credit card usage habits and needs, eliminating unsuitable choices based on the profile, so that the user is presented with a small number of credit cards and the ability to carry out detailed comparisons of features, reward programs, interest rates, etc.

History

The credit card was the successor of a variety of merchant credit schemes. It was first used in the 1920s, in the United States, specifically to sell fuel to a growing number of automobile owners. In 1938 several companies started to accept each other's cards.

The concept of using a card for purchases was invented in 1887 by Edward Bellamy^{[citation needed]} and described in his utopian novel Looking Backward. Bellamy uses the explicit term "Credit Card" eleven times in his novel (Chapters 9, 10, 11, 13, 25 and 26) and 3 times (Chapters 4, 8 and 19) in its sequel, Equality.

The concept of paying merchants using a card was invented in 1950 by Ralph Schneider and Frank X. McNamara in order to consolidate multiple cards. The Diners Club, which was created partially through a merger with Dine and Sign, produced the first "general purpose" charge card, which is similar but required the entire bill to be paid with each statement; it was followed shortly thereafter by American Express and Carte Blanche. Western Union had begun issuing charge cards to its frequent customers in 1914.

Bank of America created the BankAmericard in 1958, a product which eventually evolved into the Visa system ("Chargex" also became Visa). MasterCard came to being in 1966 when a group of credit-issuing banks established MasterCharge. The fractured nature of the US banking system meant that credit cards became an effective way for those who were travelling around the country to move their credit to places where they could not directly use their banking facilities. In 1966 Barclaycard in the UK launched the first credit card outside of the US.

There are now countless variations on the basic concept of revolving credit for individuals (as issued by banks and honored by a network of financial institutions), including organization-branded credit cards, corporate-user credit cards, store cards and so on.

In contrast, although having reached very high adoption levels in the US, Canada and the UK, it is important to note that many cultures were much more cash-oriented in the latter half of the twentieth century, or had developed alternative forms of cash-less payments, like Carte bleue, or the EC-card (Germany, France, Switzerland, among many others). In these places, the take-up of credit cards was initially much slower. It took until the 1990s to reach anything like the percentage market-penetration levels achieved in the US, Canada or UK. In many countries acceptance still remains poor as the use of a credit card system depends on the banking system being perceived as reliable.

In contrast, because of the legislative framework surrounding banking system overdrafts, some countries, France in particular, were much faster to develop and adopt chip-based credit cards which are now seen as major anti-fraud credit devices.

The design of the credit card itself has become a major selling point in recent years. The value of the card to the issuer being related to the Customer's usage of the card. This has led to the rise of Co-Brand and Affinity cards - where the card design is related to the "affinity" (a university, for example) leading to higher card usage. In most cases a percentage of the value of the card is returned to the affinity group.

Controversy

There is some controversy about credit card usage in recent years. Credit card debt has soared, particularly among young people. Since the late 1990s, lawmakers, consumer advocacy groups, college officials and other higher education affiliates have become increasingly concerned about the rising use of credit cards among college students. The major credit card companies have been accused of targeting a younger audience, in particular college students, many of whom are already in debt with college tuition fees and college loans and who typically are less experienced at managing their own finances. A recent study by United College Marketing Services has shown that student credit lines have increased to over $6,000. Credit card usage has tripled since 2001 amongst teenagers as well. Since eighteen year olds in many countries and most U.S. states are eligible for a card without parental consent or employment, the likelihood of increased balances, unwise use of credit and damaged credit scores increases.

A 2006 documentary film titled Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders deals with this subject in detail.^[9]

According to Larry Chiang of United College Marketing Services, an example of a credit card class action was where issuers were "rolling back" posting times to extract more late fees.^{[citation needed]} The due dates were "rolled back" from 1pm to 10am because mail was delivered in the afternoon so due dates were actually rolled back to charge more late fees. The following banks are listed (with the amounts penalized) in this one particular class action.

Providian: US$405 million
Bank One: US$40 million
Chase: US$22.2 million
Citibank: US$15.5 million

Another controversial area is the universal default feature of many North American credit card contracts. When a cardholder is late paying a particular credit card issuer, that card's interest rate can be raised, often considerably. Universal default allows creditors to periodically check cardholders' credit portfolios to view trade, thus allowing the institution to decrease the credit limit or increase rates on cardholders who may be late with another credit card issuer. Being late on one credit card will potentially affect all the cardholder's credit cards. Citibank has changed and does not practice this anymore, while others do still.

Another controversial area is the trailing interest issue. Trailing interest is the practice of charging interest on the entire bill no matter what percentage of it is paid. U.S Senator Carl Levin raised the issue at a U.S Senate Hearing of the woes of millions of Americans who are slaves to hidden fees, compounding interest and cryptic terms. Their woes were heard in a Senate Permanent Subcommittee on Investigations hearing which was chaired by Senator Levin who said that he intends to keep the spotlight on credit card companies and that legislative action may be necessary to purge the industry.^[10]

In the United States, some have called for Congress to enact additional regulations on the industry; to expand the disclosure box clearly disclosing rate hikes, use plain language, incorporate balance payoff disclosures, and also to outlaw universal default. At a congress hearing around March 1, 2007 Citibank announced it would no longer practice this, effective immediately. Opponents of such regulation argue that customers must become more proactive and self-responsible in evaluating and neogotiating terms with credit offerers. Some of the nation's influential top credit card issuers, who are among the top fifty corporate contributors to political campaigns, successfully opposed it.

Minimum payments

In the UK, there has recently been increasing concern about the minimum payments required on outstanding credit card balances. Until the mid-1990s the required minimum monthly payment was generally 5% of the outstanding balance, but competition in the last 15 years to attract customers has led to this figure being eroded on the premise that the minimum monthly payment to service a debt will be lower. Typically, credit card companies now only require a monthly minimum payment of between 2% and 3% of the outstanding balance, or a fixed cash fee, whichever is the greater. For example, on a debt of £1,000, the card holder can expect to pay back only £20 - £30 per month.

Unfortunately, some people are not aware of how long it can take to repay a debt when only paying the minimum each month. An example of this: by paying 2.5% of the debt each month, while accruing interest at 14% (in line with modern credit card interest rates), it can take over 14 years to pay back an original debt of £1,000, and roughly £10,500 will have been paid back.

It has recently been suggested that credit card companies include a warning on their statements discouraging customers from paying only the minimum, however few companies have so far acted upon this. Companies which do include a warning tend not to inform customers how long full repayment will take, i.e., they discourage users from making just minimum payments but do not explain why. Less financially savvy customers may ignore these empty warnings as a result.

Starting in 2006, most U.S. credit card companies regulated by the Office of the Comptroller of the Currency have been required to increase customers' minimum payments to cover at least the interest and late fees from the prior statement plus 1% of the outstanding balance. The reason is to avoid a negative amortization situation which may result when the previous 3% minimum was enforced. Negative amortization is when the payment to the creditor fails to cover the amount of interest charged during that period. This causes the consumer's credit card balance to continually increase.

Trailing interest

Trailing interest is an innovative method used to tack on hidden interest fees to a paid balance as consequence for late payment(s). For instance, regardless of whether a cardholder has paid off his or her balance in full (one whole payment rather than smaller, incremental payments), if the entire balance (with or without interest) was not paid by a specific date, interest will be applied to that particular paid balance beginning on the day after the cardholder's accounting period ended, and will continue to be applied (and thus rapidly accumulated, for interest is compounded upon the previous day's balance-plus-interest fee) until the payment is received.

Hidden costs

Merchants pay a negotiated fee -- typically 1-3% for larger merchants and 3-6% for smaller merchants -- to process credit payments. They must also bear the cost of providing a point-of-sale solution to enable the acceptance of card transactions and other card services related expenses. Credit card issuers understand full well that if card holders were aware of and made to pay these additional costs with their purchases it would tend to discourage credit card usage. As a consequence, businesses who accept credit cards often must sign a "merchant agreement" or contract with the acquirer that stipulates that they are not allowed to offer different prices for card and non-card transactions (sometimes referred to as surcharging) despite the additional costs to the business for accepting the cards. The prohibition on surcharging or cash discounts is enforced by law in some countries, although some governments are beginning to lift this restriction (see below).

Some critics have observed that this results in what is effectively a hidden expense on all transactions conducted by merchants who accept credit cards since they must build the cost of transaction fees into their overall business expense. Furthermore, cash and other non-credit card using customers are in effect made to subsidize credit card user purchases. The cost of the convenience and protections enjoyed by card holders and the profits taken from transaction fees by the card industry (which has come to rely increasingly on this revenue stream over the years) is in part borne by the non-card purchaser. Critics further note that the customers most likely to pay in cash are probably the least able to afford the additional expense, the argument going that card holders are more likely to be affluent and non-card holders less so.

A counterargument is that there are also costs to the merchant in other forms of payment. For cash payments these include frequent trips to the bank or use of an armored delivery service, theft, and employee error, such that cash is actually not cheaper for the merchant than credit cards. This argument is probably specious under most circumstances, however, considering that many merchants would offer a discount for cash-paying customers were they allowed, and indeed, do so where it is legal. The fact that laws exist or have existed that prohibit such practices and that the major card issuers strongly discourage such practices can be taken as an indicator that cash transactions do not have as much cost associated with them as credit card transactions.

To illustrate, some companies offer incentives or bonus coupons for using cash, such as Canadian Tire Money. Australia is currently acting to reduce this by allowing merchants to apply surcharges for credit card users. In the United Kingdom, merchants won the right through The Credit Cards (Price Discrimination) Order 1990^[11] to charge customers different prices according to the payment method, but few merchants do so (the most notable exceptions being budget airlines and travel agents). The United Kingdom is the world's most credit-card-intensive country, with 67 million credit cards for a population of 59 million people.^[12]

In the United States, until 1984 federal law prohibited surcharges on card transactions. Although the federal Truth in Lending Act provisions that prohibited surcharges expired that year, a number of states have since enacted laws that continue to outlaw the practice; California, Colorado, Connecticut, Florida, Kansas, Massachusetts, Maine, New York, Oklahoma, and Texas have laws against surcharges. Regardless of what state one resides in or purchases a product, however, both Visa and MasterCard have publicly stated that surcharges on credit card transactions are against the rules. ^[13]

There also exists an economic argument that credit card use increases the "velocity" of money in an economy. The result, according to the quantity theory of money, is an effective increase in the money supply, as more money is flowing through the economy at a given time.

Credit card numbering

Main article: Credit card number

The numbers found on credit cards have a certain amount of internal structure, and share a common numbering scheme.

The card number's prefix, called the Bank Identification Number, is the sequence of digits at the beginning of the number that determine the bank to which a credit card number belongs. This is the first six digits for Mastercard and Visa cards. The next nine digits are the individual account number, and the final digit is a validity check code.

In addition to the main credit card number, credit cards also carry issue and expiration dates (given to the nearest month), as well as extra codes such as issue numbers and security codes. Not all credit cards have the same sets of extra codes nor do they use the same number of digits.

Credit cards in ATMs

Many credit cards can also be used in an ATM to withdraw money against the credit limit extended to the card but many card issuers charge interest on cash advances before they do so on purchases. The interest on cash advances is commonly charged from the date the withdrawal is made, rather than the monthly billing date. Many card issuers levy a commission for cash withdrawals, even if the ATM belongs to the same bank as the card issuer. Merchants do not offer cashback on credit card transactions because they would pay a percentage commission of the additional cash amount to their bank or merchant services provider, thereby making it uneconomical.

Many credit card companies will also, when applying payments to a card, do so at the end of a billing cycle, and apply those payments to everything before cash advances. For this reason, many consumers have large cash balances, which have no grace period and incur interest at a rate that is (usually) higher than the purchase rate, and will carry those balance for years, even if they pay off their statement balance each month.

Credit cards as funding for entrepreneurs

Credit cards are a creative, yet often risky way for entrepreneurs to acquire capital for their start ups when more conventional financing is unavailable. It is rumoured that Larry Page and Sergey Brin's start up of Google was financed by credit cards to buy the necessary computers and office equipment, more specifically "a terabyte of memory". ^[14] Similarly, filmmaker Robert Townsend financed part of Hollywood Shuffle using credit cards.^[15] Director Kevin Smith funded Clerks. in part by maxing out several credit cards. Richard Hatch also financed his production of Battlestar Galactica: The Second Coming partly through his credit cards. Famed hedge fund manager Bruce Kovner began his career (and, later on, his firm Caxton Associates) in financial markets by borrowing from his credit card.

Collectible credit cards

Visa's "Happy Shoppers" credit card design

A growing field of numismatics (study of money), or more specifically Exonumia (study of money-like objects), credit card collectors seek to collect various embodiments of credit from the now familiar plastic cards to older paper merchant cards, and even metal tokens that were accepted as merchant credit cards. Early credit cards were made of celluloid, then metal and fiber, then paper and are now mostly plastic.

Charga-Plate

The Charga-Plate is an early predecessor to the credit card. They were issued by large-scale merchants, much like department store credit cards of today. In some cases, they were kept in the store. When an authorized user made a purchase, the clerk retrieved the plate from the store's files and then processed the purchase. This made it possible for stores to allow more specialized employees of their customers to use the cards, in addition to corporate officers and executives, who would normally have expense accounts and corporate credit cards. For example, an art-supply store that opened an account with a research institute might allow graphic artists employed by the institute to buy art supplies for ongoing projects. It would not be necessary for the research firm to issue a credit card to the artist: instead, a supervisor would simply say, "Go to Universal Art Supply and buy those supplies." The employee would go to the store and choose the appropriate supplies, and they would be charged to Central Institute for Research's account.

2007-08-26T09:33:00.000-07:00

Cash usually refers to money in the form of liquid currency, such as banknotes or coins.

Etymology

The English word cash is of the French caisse, itself a borrowing of the Provençal caissa. That Provençal word is a derivative of the Latin capsa (box, chest), most likely by way of an unattested Vulgar Latin form *capsea; Spanish caja and Portuguese caixa are their respective languages' reflexes.^[1] ^[2] From the original sense of a box or a chest, the word came to refer to a sum of money such as was or might be contained in one, and eventually to specie or, with the elimination of metallic standards, banknotes.^[1] In this sense, it is used in contrast to credit or other financial instruments.

The word "cash" can also be traced back to: Sanskrit karsa, a weight of gold or silver but akin to Old Persian karsha-, a weight. a unit of value equivalent to one cash coin.

Historical usage in Asia

The word was formerly used also to refer to certain low-value coins used in South and East Asia. This sense derives from the Tamil kāsu, a South Indian monetary unit. The early European representations of this Tamil word, including Portuguese caxa and English cass, merged the existing words caixa and cash, which had similar connections with money. In the pre-1818 South Indian monetary system, the cash was the basic coin, with 80 cash equalling a fanam and 42 fanams equalling a star pagoda worth roughly 7s. 8d.^[3]

This assimilated Tamil word was then applied to various other coins with which European traders came into contact, including the famous holed cash coins of China, the Chinese cash. Also called wén, these coins were commonly strung on cords for use in larger transactions; 1000 equalled a tael.^[3]

Bookkeeping and finance

In bookkeeping and finance, cash can also refer to checks, money orders, cashier's checks, bank drafts, or traveler's checks. In all these forms, the term indicates the most liquid form of assets, which have a fixed value and can be easily converted to currency: "ready money". For example, wages or salaries paid as "cash" (as opposed to, e.g., stock options) would in most countries normally be paid with checks or direct bank deposits, which are trivially convertible to currency.

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Credit

Credit may refer to:

Debits and credits, a type of bookkeeping entry
Credit (creative arts), acknowledging the ideas or other work of writers and contributors
Credit (education), a system of measuring academic coursework
Credit (finance), the granting of a loan and the creation of debt
Credit rating, assessment of credit worthiness
Credit score, a representation of credit worthiness
Credit history, a record of an individual's or company's past borrowing and repaying
Adverse credit history
Motion picture credits, a list of the cast and crew involved in the production of a movie or television program
Opening credits or Closing credits
Credits (science fiction), a unit of currency used in science fiction
Token coin, coin-like objects used instead of coins

All informatio from www.wikipedia.com

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All informatio from www.wikipedia.com

BANK

A bank is a commercial or state institution that provides financial services, including issuing money in form of coins, banknotes or debit cards, receiving deposits of money, lending money and processing transactions. A commercial bank accepts deposits from customers and in turn makes loans based on those deposits. Some banks (called Banks of issue) issue banknotes as legal tender. Many banks offer ancillary financial services to make additional profit; for most banks also rent safe deposit boxes in their branches.

Currently in most jurisdictions commercial banks are regulated and require permission to operate. Operational authority is granted by bank regulation bank regulatory authorities and provide rights to conduct the most fundamental banking services such as accepting deposits and making loans. A commercial bank is usually defined as an institution that accepts both deposits and makes loans; there are also financial institutions that provide selected banking services without meeting the legal definition of a bank. Banks have influenced economies and politics for centuries. The primary purpose of a bank was to provide loans to trading companies. Banks provide funds to allow businesses to purchase inventory, and collected those funds back with interest when the goods were sold. For centuries, the banking industry only dealt with businesses, not consumers. Commercial lending today is a very intense activity, with banks carefully analysing the financial condition of its business clients to determine the level of risk in each loan transaction. Banking services have expanded to include services directed at individuals and risk in these much smaller transactions are pooled.

A bank generates a profit from the differential between what level of interest it pays for deposits and other sources of funds, and what level of interest it charges in its lending activities. This difference is referred to as the spread between the cost of funds and the loan interest rate. Historically, profitability from lending activities has been cyclic and dependent on the needs and strengths of loan customers. In recent history, investors have demanded a more stable revenue stream and banks have therefore placed more emphasis on transaction fees, primarily loan fees but also including service charges on array of deposit activities and ancillary services (international banking, foreign exchange, insurance, investments, wire transfers, etc.). However, lending activities still provide the bulk of a commercial bank's income.

The name bank derives from the Italian word banco, desk, used during the Renaissance by Florentines bankers, who used to make their transactions above a desk covered by a green tablecloth.

Services typically offered by banks

Although the basic type of services offered by a bank depends upon the type of bank and the country, services provided usually include:

Taking deposits from their customers and issuing current (UK) or checking (US) accounts and savings accounts to individuals and businesses
Extending loans to individuals and businesses
Cashing cheques
Facilitating money transactions such as wire transfers and cashiers checks
Issuing credit cards, ATM cards, and debit cards
Storing valuables, particularly in a safe deposit box
Cashing and distributing bank rolls
Consumer & commercial financial advisory services
Pension & retirement planning

Financial transactions can be performed through many different channels:

A branch, banking centre or financial centre is a retail location where a bank or financial institution offers a wide array of face to face service to its customers

ATM is a computerised telecommunications device that provides a financial institution's customers a method of financial transactions in a public space without the need for a human clerk or bank teller

Mail is part of the postal system which itself is a system wherein written documents typically enclosed in envelopes, and also small packages containing other matter, are delivered to destinations around the world

Telephone banking is a service provided by a financial institution which allows its customers to perform transactions over the telephone

Online banking is a term used for performing transactions, payments etc. over the Internet through a bank, credit union or building society's secure website

Types of banks

Banks' activities can be divided into retail banking, dealing directly with individuals and small businesses; business banking, providing services to mid-market business; corporate banking, directed at large business entities; and investment banking, relating to activities on the financial markets. Most banks are profit-making, private enterprises. However, some are owned by government, or are non-profits.

Central banks are non-commercial bodies or government agencies often charged with controlling interest rates and money supply across the whole economy. They generally provide liquidity to the banking system and act as Lender of last resort in event of a crisis.

Types of retail banks

Commercial bank: the term used for a normal bank to distinguish it from an investment bank. After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital market activities. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses.
Community Banks: locally operated financial institutions that empower employees to make local decisions to serve their customers and the partners
Community development banks: regulated banks that provide financial services and credit to underserved markets or populations.
Postal savings banks: savings banks associated with national postal systems.
Private banks: manage the assets of high net worth individuals.
Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks.
Savings bank: in Europe, savings banks take their roots in the 19th or sometimes even 18th century. Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative, while in others socially committed individuals created foundations to put in place the necessary infrastructure. Nowadays, European savings banks have kept their focus on retail banking: payments, savings products, credits and insurances for individuals or small and medium-sized enterprises. Apart from this retail focus, they also differ from commercial banks by their broadly decentralised distribution network, providing local and regional outreach and by their socially responsible approach to business and society.

Building societies and Landesbanks: conduct retail banking.
Ethical banks: banks that prioritize the transparency of all operations and make only social-responsible investments.

Bank crisis

Banks are susceptible to many forms of risk which have triggered occasional systemic crises. Risks include liquidity risk (the risk that many depositors will request withdrawals beyond available funds), credit risk (the risk that those who owe money to the bank will not repay), and interest rate risk (the risk that the bank will become unprofitable if rising interest rates force it to pay relatively more on its deposits than it receives on its loans), among others.

Banking crises have developed many times throughout history when one or more risks materialize for a banking sector as a whole. Prominent examples include the U.S. Savings and Loan crisis in 1980s and early 1990s, the Japanese banking crisis during the 1990s, the bank run that occurred during the Great Depression, and the recent liquidation by the central Bank of Nigeria, where about 25 banks were liquidated.

Bank size information

Top ten banking groups in the world ranked by Shareholder equity ($m)

The 2006 bank atlas was compiled from commercial banks’ annual reports and financial statements for 2006 and 2005.^[3] Figures in U.S. dollars

Country	Company	Shareholder equity ($m)
United States	Citigroup	112537 $mln
United States	JPMorgan Chase	107211 $mln
United States	Bank of America	101224 $mln
United Kingdom	HSBC	98226 $mln
Japan	Mitsubishi UFJ Financial Group	83281 $mln
France	Credit Agricole Group	65137 $mln
United Kingdom	Royal Bank of Scotland Group	64453 $mln

Top ten banking groups in the world ranked by assets

Figures in U.S. dollars, and as at end-2004^[4]

Rank	Country	Company	Assets (US $)
1	Switzerland	UBS	1,533 billion
2	United States	Citigroup	1,484 billion
3	Japan	Mizuho Financial Group	1,296 billion
4	United Kingdom	HSBC Holdings	1,277 billion
5	France	Credit Agricole Group	1,243 billion
6	France	BNP Paribas	1,234 billion
7	United States	JPMorgan Chase & Co.	1,157 billion
8	Germany	Deutsche Bank	1,144 billion
9	United Kingdom	Royal Bank of Scotland	1,119 billion
10	United States	Bank of America	1,110 billion

Top ten banks in the world ranked by market capitalisation

Figures in U.S. dollars, and as at 26 July 2006^[5]

Rank	Country	Company	Market Capitalisation (US $)
1	United States	Citigroup	275 billion
2	China	ICBC	250 billion
3	United States	Bank of America	230 billion
4	United Kingdom	HSBC	200 billion
5	United States	JPMorgan Chase	165 billion
6	Japan	Mitsubishi UFJ	145 billion
7	Italy	Unicredit	130 billion (2007)
8	United States	Wells Fargo	120 billion
9	Switzerland	UBS	110 billion
10	United Kingdom	Royal Bank of Scotland	100 billion

As at 16 May 2007, following the January 2007 merger between Banca Intesa and Sanpaolo SPA, Italy's newly formed Intesa Sanpaolo has a market cap of $104.7 billion.

Top ten bank holding companies in the world ranked by profit

Figures in U.S. dollars, and as 2006

Rank	Country	Company	Profit (US $)
1	United States	Citigroup	22.13 billion
2	United States	Bank of America	21.13 billion
3	United Kingdom	HSBC	14.55 billion
4	United States	JP Morgan Chase	14.44 billion
5	United Kingdom	Royal Bank of Scotland	12.1 billion
6	Switzerland	UBS	9.79 billion
7	United States	Goldman Sachs	9.34 billion
8	United States	Wells Fargo	8.48 billion
9	United States	Wachovia	7.79 billion
10	United States	Morgan Stanley	7.45 billion

Top ten banking groups in the world ranked by Tier 1 capital

Figures in U.S. dollars, and as at end-2005^[6]

Rank	Country	Company	Tier 1 Capital (US $)
1	United Kingdom	HSBC	79 billion
2	United States	Citigroup	75 billion
3	United States	Bank of America	73 billion
4	United States	JP Morgan Chase	72 billion
5	Japan	Mitsubishi UFJ Financial Group	64 billion
6	France	Credit Agricole Group	60 billion
7	United Kingdom	Royal Bank of Scotland	48 billion
8	Japan	Sumitomo Mitsui Financial Group	40 billion
9	Japan	Mizuho Financial Group	39 billion
10	Spain	Santander Central Hispano	38 billion