Banking

Bank

Company type	Financial services
Industry	Financial services
Area served	Worldwide
Products	Loans, Credit cards, Savings accounts, Checking accounts, Investment services

A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be performed either directly or indirectly through capital markets. Due to their importance in the financial stability of a country, banks are highly regulated in most countries. Most nations have institutionalized a system known as fractional reserve banking, under which banks hold liquid assets equal to only a portion of their current liabilities. In addition to other regulations intended to ensure liquidity, banks are generally subject to minimum capital requirements based on an international set of capital standards, known as the Basel Accords.

History

The history of banking is intertwined with the history of money. The first banks were the merchants of the ancient world who made grain loans to farmers and traders who carried goods between cities. This began around 2000 BCE in Assyria and Babylonia. Later, in ancient Greece and during the Roman Empire, lenders based in temples made loans and added two important innovations: they accepted deposits and changed money. Archaeology from this period in ancient China and India also shows evidence of money lending activity.

Types of Banks

Banks can be classified into several types based on their functions and the services they provide:

• Retail banks: These banks deal directly with consumers and offer personal banking services such as savings and checking accounts, mortgages, and personal loans.
• Commercial banks: These banks provide services to businesses and corporations, including loans, credit, and deposit services.
• Investment banks: These banks assist companies in raising capital, provide advisory services for mergers and acquisitions, and offer investment management services.
• Central banks: These banks manage the currency, money supply, and interest rates of a state or country. They also oversee the commercial banking system of their respective countries. Examples include the Federal Reserve in the United States and the European Central Bank.

Functions of Banks

Banks perform several critical functions in the economy, including:

• Accepting deposits: Banks provide a safe place for individuals and businesses to deposit their money.
• Providing loans: Banks lend money to individuals and businesses for various purposes, such as buying a home, starting a business, or funding education.
• Payment and settlement services: Banks facilitate transactions by providing payment services such as checks, debit cards, and electronic funds transfers.
• Wealth management: Banks offer investment and wealth management services to help individuals and businesses grow their assets.
• Currency exchange: Banks provide currency exchange services for individuals and businesses engaged in international trade.

Regulation

Banks are subject to extensive regulation to ensure their stability and protect depositors. Regulatory frameworks vary by country but generally include requirements for capital adequacy, liquidity, and risk management. Key regulatory bodies include the Federal Reserve in the United States, the European Central Bank, and the Bank of England.

See also

• Financial services
• Fractional reserve banking
• Basel Accords
• Central bank
• Retail bank
• Commercial bank
• Investment bank