Banking what is it

Mar, , p. Skip to content Readability Tools. Reader View. Dark Mode. High Contrast. Reset All. Publications What is the economic function of a bank? July Imagine a World Without Banks One way to answer your question is to imagine, for a moment, a world without banking institutions, and then to ask yourself a few questions. What would you do with your savings?

Would you be able to borrow save as much as you need, when you need it, in a form that would be convenient for you? What risks might you face as a saver borrower? How Banks Work Banks operate by borrowing funds-usually by accepting deposits or by borrowing in the money markets. Let me also suggest some more advanced reading materials: What's Different about Banks--Still?

Measure content performance. Develop and improve products. List of Partners vendors. A bank is a financial institution licensed to receive deposits and make loans. Banks may also provide financial services such as wealth management, currency exchange, and safe deposit boxes. There are several different kinds of banks including retail banks, commercial or corporate banks, and investment banks. In most countries, banks are regulated by the national government or central bank.

Banks are a very important part of the economy because they provide vital services for both consumers and businesses. As financial services providers, they give you a safe place to store your cash. Through a variety of account types such as checking and savings accounts , and certificates of deposit CDs , you can conduct routine banking transactions like deposits, withdrawals, check writing, and bill payments.

You can also save your money and earn interest on your investment. Banks also provide credit opportunities for people and corporations. The money you deposit at the bank—short-term cash—is used to lend to others for long-term debt such as car loans, credit cards, mortgages , and other debt vehicles.

This process helps create liquidity in the market—which creates money and keeps the supply going. Just like any other business, the goal of a bank is to earn a profit for its owners. For most banks, the owners are their shareholders.

Banks do this by charging more interest on the loans and other debt they issue to borrowers than what they pay to people who use their savings vehicles. Banks range in size based on where they're located and who they serve—from small, community-based institutions to large commercial banks. While traditional banks offer both a brick-and-mortar location and an online presence, a new trend in online-only banks emerged in the early s.

These banks often offer consumers higher interest rates and lower fees. Convenience, interest rates, and fees are some of the factors that help consumers decide their preferred banks. The regulatory environment for banks has since tightened considerably as a result. Depending on the structure, they may be regulated at both levels. State banks are regulated by a state's department of banking or department of financial institutions.

This agency is generally responsible for regulating issues such as permitted practices, how much interest a bank can charge, and auditing and inspecting banks. OCC regulations primarily cover bank capital levels, asset quality, and liquidity. Under this act, large banks are assessed on having sufficient capital to continue operating under challenging economic conditions.

This annual assessment is referred to as a stress test. Retail banks deal specifically with retail consumers, though some global financial services companies contain both retail and commercial banking divisions. These banks offer services to the general public and are also called personal or general banking institutions. Retail banks provide services such as checking and savings accounts, loan and mortgage services, financing for automobiles, and short-term loans like overdraft protection.

Many larger retail banks also offer credit card services to their customers, and may also supply their clients with foreign currency exchange. Banks collect money from those who have surplus money and give the same to those who are in need of money.

A bank's main activity should be to do business of banking which should not be subsidiary to any other business. A bank should always add the word "bank" to its name to enable people to know that it is a bank and that it is dealing in money. As per the statutory norms, bank is a company which has the business of lending and accepting the money from the public and others.

Mayuri, it is to be understood as follows: 1. Person means an individual running the banking business. Firm means more then one person running the banking business. Company means an organisation where the shareholders invest their money and management runs the banking business. A banking 'company' is granted a legal entity as per law of most countries, but in India it's the Banking Companies Act.

One must understand that each law has its own definitions of a person, which may be an individual, firm, AOP, Co. So technically, whether a bank is run by a single person which is usually recognised as a financial institution as banks need to conform to central bank rules , a partnership firm or by an entire company, it is a 'person'. Home Disclaimer Privacy Contact.

What is a Bank? Comments 5. Label: Banking.