The essential function of a bank is to provide services related to the storing of value and the extending of credit. The evolution of banking dates back to the earliest writing, and continues in the present where a bank is a financial institution that provides banking and other financial services. Currently the term bank is generally understood an institution that holds a banking license. Banking licenses are granted by financial supervision authorities and provide rights to conduct the most fundamental banking services such as accepting deposits and making loans. There are also financial institutions that provide certain banking services without meeting the legal definition of a bank, a so called non-bank. Banks are a subset of the financial services industry.
The word bank is derived from the Italian banca, which is derived from German and means bench. The terms bankrupt and "broke" are similarly derived from banca rotta, which refers to an out of business bank, having its bench physically broken. Money lenders in Northern Italy originally did business in open areas, or big open rooms, with each lender working from his own bench or table.
Typically, a bank generates profits from transaction fees on financial services and on the interest it charges for lending.
1 Services typically offered by banks
Although the type of services offered by a bank depends upon the type of bank and the country, services provided usually include:
- Directly take deposits from the general public and issue checking and savings accounts
- Lend out money to companies and individuals (see moneylender)
- Cash checks
- Facilitate money transactions such as wire transferWire transfers are when people usually send money to people either locally, domestically, or internationally. This can be done by a simple bank account transfer, or by a transfer of cash at a cash office. Wire transfers have been available since the advens and cashiers check s
- Issue credit cardA credit card system is a type of retail transaction settlement and credit system, named after the small plastic card issued to users of the system. A credit card is different from a debit card in that the credit card issuer loans the consumer money rathes, ATM, and debit cardA Debit card is a ISO 7810 card which physically resembles a credit card, and, like a credit card, is used as an alternative to cash when making purchases. However, when purchases are made with a debit card, the funds are withdrawn directly from the purchs
- online bankingOnline banking (Internet banking) is a term used for performing transactions, payments etc. over the internet through a bank's secure website. This can be very useful, especially for banking outside bank hours (which tend to be very short) and banking fro
- Storage of valuables, particularly in a safe deposit boxA safe deposit box is usually located near the vault or in the back of a bank or post office. It usually holds like valuable jewels, excess money, or important documents that a person might feel afraid to leave at home due to fear of theft.
2 Types of banks
There are several different types of banks including:
- Central bankAlthough officially state owned in most countries, the central bank is usually an autonomous entity responsible for the stability of the national currency see also money and the national financial system as a whole. Furthermore it designs and implements ms usually control monetary policyMonetary policy is the financial policy of managing the money supply to achieve specific goals—such as reducing inflation or achieving full employment or more well-being. Almost always, special institutions (like the European Central Bank or the Federal R and may be the lender of last resort in the event of a crisis. They are often charged with controlling the money supply, including printing paper money. Examples of central banks are the European Central Bank and the U.S. Federal Reserve Bank.
- Investment banks " underwrite " (guarantee the sale of) stock and bond issues and advise on mergers. Examples of investment banks are Goldman Sachs of the USA or Nomura Securities of Japan.
- Merchant banks were traditionally banks which engaged in trade financing. The modern definition, however, refers to banks which provides capital to firms in the form of shares rather than loans. Unlike Venture capital firms, they tend not to invest in new companies.
- Private banks manage the assets of the very rich. An example of a private bank is the Union Bank of Switzerland.
- Savings banks traditionally just did savings and mortgages, and ave special charters, but at present there is nothing inherently distinct about a savings bank.
- Offshore banks are banks located in jurisdictions with low taxation and regulation, such as Switzerland or the Channel Islands. Many offshore banks are essentially private banks.
- Commercial bank, is the term used for a normal bank to dinstinguish it from an investment bank. Since the two no longer have to be under seperate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with corporations or large businesses.
- Retail bank s primary customers are individuals. An example of a retail bank is Washington Mutual of the USA.
- Universal bank s, more commonly known as a financial services company, engage in several of these activities. For example, Citigroup, a large American bank, is involved in commercial and retail lending; it owns a merchant bank (Citicorp Merchant Bank Limited) and an investment bank (Salomon Smith Barney); it operates a private bank (Citigroup Private Bank); finally, its subsidiaries in tax-havens offer offshore banking services to customers in other countries. Almost all large financial institutions are diversified and engage in multiple activities.
