What is proof of funds?
Proof of funds (POF) refers to a document that demonstrates that a person or entity has the capacity and the funds available for a specific transaction. Proof of funds is generally in the form of a bank statement, guarantee or deposit. The purpose of the proof of funds document is to ensure that the funds necessary for the complete execution of the transaction are accessible and legitimate.
Understanding proof of funds
Some scammers planning a financial scam may ask for proof of funds to ensure that they are focusing their efforts on someone with significant financial worth. Therefore, it is important to make sure that you only provide proof of funds to the people you trust who you have thoroughly investigated.
Proof of funds against proof of deposit
In commercial banking, the proof of deposit is the verification by the financial institution of the dollar amount of a check or draft in the process of being deposited. To do this, the institution will compare the amount on the check with the amount on the deposit slip. (This is the second step in presenting checks for the payment process, after the checks are sorted by a reader-sorter.)
Proof of deposit and proof of funds are methods used by commercial banks to guarantee the variety of transactions they process.
Proof of funds and commercial bank
Commercial banks differ from investment banks in that they mainly work with private and individual customers. Commercial banks accept deposits; offer current account services; provide commercial, personal and mortgage loans; and offers basic financial products such as certificates of deposit (CD) and savings accounts.
In contrast, an investment bank specializes in large and complex financial transactions, such as underwriting. Investment banks can also act as intermediaries between a securities issuer and the investing public (in an IPO), facilitate mergers and other corporate reorganizations and act as a broker and / or financial advisor for institutional clients.
Commercial banks make money by making loans and taking interest on these loans. The money they use to provide the loans comes primarily from customer deposits. Net interest income is the amount of money a commercial bank earns through the spread between the interest it pays on deposits and the interest it earns on loans.
Some commercial banks, such as JPMorgan Chase, also have investment banking divisions, following the repeal of the Glass-Steagall Act of 1932 (adopted during the Great Depression). At the time, the dominant idea was that the financial markets would be more stable if the commercial bank and the investment bank were separated.