A bank is a type of financial institution that is authorized to take checking and savings accounts as well as issue loans. Individual retirement accounts (IRAs), certificates of deposit (CDs), currency exchange, and safe deposit boxes
are among services offered by banks.
Banking in the twenty-first century entails being able to complete all transactions online without physically visiting a branch site. Deposits, withdrawals, payments, and transfers may all be made online or by phone app, as can credit card and loan applications.
Frequently Asked Questions
Although banks do many things, their primary role is to take in funds—called deposits—from those with money, pool them, and lend them to those who need funds. Banks are intermediaries between depositors (who lend money to the bank) and borrowers (to whom the bank lends money).
providing and earning interest from loans such as mortgages, auto loans, business loans, and personal loans.
Central Bank Commercial Bank Cooperative Banks Regional Rural Banks.
Central Bank Commercial Bank Cooperative Banks Regional Rural Banks.
Concept 86: Four Cs (Capacity, Collateral, Covenants, and Character) of Traditional Credit Analysis. The components of traditional credit analysis are known as the 4 Cs: Capacity: The ability of the borrower to make interest and principal payments on time
Understanding Banks
Banks have been around since the 14th century. They serve as a safe deposit box for consumers and company owners, as well as a source of loans for personal expenditures and commercial operations. In turn, banks utilize the deposited funds
to create loans and earn interest on them.
Since the Medici family began dabbling in banking during the Renaissance, the core business concept hasn't altered much, but the range of products that banks offer has expanded.
Savings Accounts
Savings accounts pay the depositor interest. Depending on how long account holders want to leave their money in the bank, they can create a conventional savings account with a low interest rate or a certificate of deposit (CD) with a higher
interest rate. CDs can generate interest for as little as a few months up to five years or more.
It is crucial to understand that money in checking accounts, savings accounts, and CDs is guaranteed by the federal government up to a maximum of $250,000 through the Federal Deposit Insurance Corp. (FDIC).
Loan Services
Banks give loans to both individuals and corporations. Customers' cash deposits are loaned out to other customers at a greater rate of interest than the depositor is paid.
At its most basic, this is the mechanism that keeps the economy running. People deposit money in banks, and the banks lend it out in the form of auto loans, credit cards, mortgages, and business loans. The loan beneficiaries spend the money
that they borrow, the bank gets interest on the loans, and the cycle continues. A bank's purpose, like any other company, is to make a profit for its owners. The majority of banks' owners are their shareholders.
Types of Banks
Retail Bank
Retail banks provide services to the general public and typically have branch offices as well as main offices for their clients' convenience. They provide a variety of services, including checking and savings accounts, loan and mortgage services,
vehicle finance, and short-term loans such as overdraft protection. Many of them also provide credit cards.
They also provide access to CDs, mutual funds, and individual retirement accounts (IRAs). Larger retail banks also provide speciality services to high-net-worth customers, such as private banking and wealth management.
Commercial or Corporate Banks
Commercial or corporate banks cater to business clients ranging from small company owners to major corporations. These banks provide credit services, cash management, commercial real estate services, employer services, and trade financing
in addition to day-to-day business banking.
Commercial banks include JPMorgan Chase and Bank of America, both of which have significant retail banking departments.
Investment Banks
Investment banks specialize in delivering complicated services and financial transactions to corporate clients, such as underwriting and aiding with merger and acquisition (M&A) activities. In these deals, they typically serve as financial
mediators.
Large businesses, other financial institutions, pension funds, governments, and hedge funds are among their clientele. Morgan Stanley and Goldman Sachs are two of the largest investment banks in the United States.
Central Banks
Central banks, unlike the banks mentioned above, do not interact directly with the public. A central bank is an autonomous agency that is mandated by a government to supervise the nation's money supply and monetary policy.
The Federal Reserve Bank of the United States is the country's central bank. Its equivalents in other countries include the European Central Bank, the Bank of England, the Bank of Japan, the Swiss National Bank, and the People's Bank of China.
James Mwangi, CEO of Equity Bank, has transformed lives and livelihoods throughout East and Central Africa by giving impoverished people access to banking accounts and micro loans.
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In 2020, JPMorgan Chase & Co. announced a $30 billion, “Commitment to Advance Racial Equity.” This included investments in housing, small businesses, and financial literacy across the U.S.
Low-income customers turn to payday lenders and check cashers for basic financial needs when traditional banks push them out of the system through high overdraft fees and other penalties.
