Banking - Questions And Answers
Banks are financial bodies at which entities that range individuals to corporations can put their money on deposit.
Bank institutions serve their clients by facilitating the transfer of funds between different entities. This flexibility reduces the time needed for transactions, and the transfer of money is carried out in a secured fashion.
There is a wide array of services provided by banks, apart from keeping their clients' savings. One of the major roles of banking institutions is to lend money to businesses and private parties. Banks grant loans to third parties by using deposits made by their clients.. Every fee payable to the bank allows banks to reinvest in order to earn additional money in interest. Banking makes profit through the difference between the interest paid out to depositors and the interest earned on loans.
Yet, banks are not allowed to loan all deposits simultaneously. Most states have regulations that require the banking institutions to maintain a certain percentage of the deposits on reserve. The idea behind this practice is to assure customers that they can withdraw their deposits whenever they need them. Among the services offered by banks are also debit cards, mutual funds, credit cards, safe deposit boxes, and other investment instruments.
There are different venues for financing available to individuals and institutions. Thrifts and credit unions are good examples. Banks and these financing institutions differ in view of the regulatory structure that oversees their activities. Among the banks, there are also various types. The major purpose of a bank determines in which category it falls.
Retail banks or personal banking services are banks that transact directly with their customers. They offer to customers a variety of services such as mortgages, checking accounts, personal loans, and credit and debit cards. There exist several types of retail structures such as the offshore, community and savings, and community development banks. Contrasting with the retail bank is the private bank that is concerned primarily with wealth management to high net worth persons.
The commercial bank is a separate type of bank. This can refer to a separate entity or to a particular division that deals with deposits and loans to large companies such as corporations. Finally, investment banks are among the key players on the financial markets. Mergers and acquisitions are among the financial services offered by these banks.
In addition, banks may be divided into categories based on their ownership. Banks can either be privately or publicly owned. The primary objective of private banks is profit accumulation. Offshore bodies are good examples of privately owned banks because they can operate reduced taxes compared to the country where the investor is situated.
On the other hand, public banks or central banks are overseen by the governments of the separate countries and operate as the nations' centralized banks. Central banks have specific responsibilities related to the country such as providing the money supply of the state, operating as a last resort lender to banking institutions, and controlling the interest rate on subsidized loans. Key responsibilities of central banks are overseeing the activities of commercial banks and setting the interest rate for the country. As an additional task, central banks monitor the banking sector's liquidity. Most industrialized states have independent central banks so as to limit the risks of political interference with their activities. In this category are the European Central Banks and the Federal Reserve System. Common objectives of all central banks are reaching price stability, high employment levels, stable interest rate, stability of the foreign exchange as well as on the financial markets.
by: John Trenton