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A bank is a financial institution that accepts
deposits A deposit account is a bank account maintained by a financial institution in which a customer can deposit and withdraw money. Deposit accounts can be savings accounts, current accounts or any of several other types of accounts explained below. ...
from the public and creates a
demand deposit Demand deposits or checkbook money are funds held in demand accounts in commercial banks. These account balances are usually considered money and form the greater part of the narrowly defined money supply of a country. Simply put, these are dep ...
while simultaneously making
loan In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money. The document evidencing the deb ...
s. Lending activities can be directly performed by the bank or indirectly through
capital market A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers ...
s. As banks play an important role in financial stability and the economy of a country, most jurisdictions exercise a high degree of regulation over banks. Most countries have institutionalized a system known as
fractional-reserve banking Fractional-reserve banking is the system of banking in all countries worldwide, under which banks that take deposits from the public keep only part of their deposit liabilities in liquid assets as a reserve, typically lending the remainder to ...
, under which banks hold liquid assets equal to only a portion of their current liabilities. In addition to other regulations intended to ensure
liquidity Liquidity is a concept in economics involving the convertibility of assets and obligations. It can include: * Market liquidity In business, economics or investment, market liquidity is a market's feature whereby an individual or firm can quic ...
, banks are generally subject to minimum capital requirements based on an international set of capital standards, the
Basel Accords The Basel Accords refer to the banking supervision accords (recommendations on banking regulations) issued by the Basel Committee on Banking Supervision (BCBS). Basel I was developed through deliberations among central bankers from major count ...
. Banking in its modern sense evolved in the fourteenth century in the prosperous cities of
Renaissance Italy The Italian Renaissance ( ) was a period in History of Italy, Italian history between the 14th and 16th centuries. The period is known for the initial development of the broader Renaissance culture that spread across Western Europe and marked t ...
but, in many ways, functioned as a continuation of ideas and concepts of
credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...
and
lending In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money. The document evidencing the debt ( ...
that had their roots in the ancient world. In the
history of banking The history of banking began with the first prototype banks, that is, the merchants of the world, who gave grain loans to farmers and traders who carried goods between cities. This was around 2000 BCE in Assyria, India and Sumer. Later, in a ...
, a number of banking dynasties notably, the Medicis, the
Pazzi The Pazzi were a powerful family in the Republic of Florence. Their main trade during the fifteenth century was banking. In the aftermath of the Pazzi conspiracy in 1478, members of the family were banished from Florence and their property was ...
, the
Fugger The House of Fugger () is a German family that was historically a prominent group of European bankers, members of the fifteenth- and sixteenth-century mercantile patriciate of Augsburg, international mercantile bankers, and venture capitalists. ...
s, the
Welser Welser was a German banking and merchant family, originally a patrician family based in Augsburg and Nuremberg, that rose to great prominence in international high finance in the 16th century as bankers to the Habsburgs and financiers of Cha ...
s, the Berenbergs, and the
Rothschilds The Rothschild family ( , ) is a wealthy Ashkenazi Jews, Ashkenazi Jewish noble banking family originally from Frankfurt. The family's documented history starts in 16th-century Frankfurt; its name is derived from the family house, Rothschild, ...
have played a central role over many centuries. The oldest existing
retail bank Retail banking, also known as consumer banking or personal banking, is the provision of services by a bank to the general public, rather than to companies, corporations or other banks, which are often described as wholesale banking (corporate ba ...
is
Banca Monte dei Paschi di Siena Banca Monte dei Paschi di Siena S.p.A. (), known as BMPS or just MPS, is an Italian bank. Tracing its history to a mount of piety founded in 1472 () and established in its present form in 1624 (), it is the world's List of oldest banks, oldest ...
(founded in 1472), while the oldest existing
merchant bank A merchant bank is historically a bank dealing in commercial loans and investment. In modern British usage, it is the same as an investment bank. Merchant banks were the first modern banks and evolved from medieval merchants who traded in comm ...
is
Berenberg Bank Joh. Berenberg, Gossler & Co. Kommanditgesellschaft, KG, commonly known as Berenberg Bank and also branded as simply Berenberg, is a Multinational corporation, multinational full-service private bank, private and merchant bank headquartered in H ...
(founded in 1590).


History

Banking as an archaic activity (or quasi-banking) is thought to have begun as early as the end of the 4th millennium BCE, to the 3rd millennia BCE.


Medieval

In Europe, the first recorded instances of private banks were run by the Knights Templar. The Knights provided safe passage for pilgrims traveling to Jerusalem. To avoid being targeted by robbers because of the large sum of money required for the pilgrimage, pilgrims would exchange money in Templar strongholds for a receipt. They could then withdraw the money along the route at other Templar strongholds to purchase necessities. The organization would provide these services from the 12th century until their disbandment in the early 14th century. The present era of banking can be traced to wealthy medieval
Renaissance The Renaissance ( , ) is a Periodization, period of history and a European cultural movement covering the 15th and 16th centuries. It marked the transition from the Middle Ages to modernity and was characterized by an effort to revive and sur ...
Italian city-states, whose elite families such as the Bardi and
Peruzzi The Peruzzi family were bankers of Florence, among the leading families of the city in the 14th century, before the rise to prominence of the Medici. Their modest antecedents stretched back to the mid 11th century, according to the family's gen ...
dominated banking in 14th-century Florence before establishing branches in many other parts of Europe.
Giovanni di Bicci de' Medici Giovanni di Bicci de' Medici ( – February 1429) was an Italian banker and founder of the Medici Bank. While other members of the Medici family, such as Chiarissimo di Giambuono de' Medici, who served in the Signoria of Florence in 1401, and ...
set up one of the most famous Italian banks, the Medici Bank, in 1397. The
Consell de Cent The Consell de Cent (, meaning in English "Council of One Hundred") was a governmental institution of Barcelona. It was established in the 13th century and lasted until the 18th century. Its name derives from the number of its members: one hund ...
founded the earliest-known state deposit bank, the Taula de canvi de Barcelona (Table of Change), in 1401 at
Barcelona Barcelona ( ; ; ) is a city on the northeastern coast of Spain. It is the capital and largest city of the autonomous community of Catalonia, as well as the second-most populous municipality of Spain. With a population of 1.6 million within c ...
. This was followed by The Banco di San Giorgio (Bank of St. George), created in 1407 at
Genoa Genoa ( ; ; ) is a city in and the capital of the Italian region of Liguria, and the sixth-largest city in Italy. As of 2025, 563,947 people live within the city's administrative limits. While its metropolitan city has 818,651 inhabitan ...
, Italy.


Early modern

Fractional reserve banking Fractional-reserve banking is the system of banking in all countries worldwide, under which banks that take deposits from the public keep only part of their deposit liabilities in liquid assets as a reserve, typically lending the remainder to ...
and the issue of
banknote A banknote or bank notealso called a bill (North American English) or simply a noteis a type of paper money that is made and distributed ("issued") by a bank of issue, payable to the bearer on demand. Banknotes were originally issued by commerc ...
s emerged in the 17th and 18th centuries. Merchants started to store their gold with the
goldsmith A goldsmith is a Metalworking, metalworker who specializes in working with gold and other precious metals. Modern goldsmiths mainly specialize in jewelry-making but historically, they have also made cutlery, silverware, platter (dishware), plat ...
s of
London London is the Capital city, capital and List of urban areas in the United Kingdom, largest city of both England and the United Kingdom, with a population of in . London metropolitan area, Its wider metropolitan area is the largest in Wester ...
, who possessed private vaults, and who charged a fee for that service. In exchange for each deposit of precious metal, the goldsmiths issued
receipt A receipt (also known as a packing list, packing slip, packaging slip, (delivery) docket, shipping list, delivery list, bill of the parcel, Manifest (transportation), manifest, or customer receipt) is a document acknowledging that something h ...
s certifying the quantity and purity of the metal they held as a
bailee Bailment is a legal relationship in common law, where the owner of personal property ("chattel") transfers physical possession of that property to another, who holds the property for a certain purpose, but retains ownership. The owner who sur ...
; these receipts could not be assigned, only the original depositor could collect the stored goods. Gradually the goldsmiths began to lend money out on behalf of the
depositor A deposit account is a bank account maintained by a financial institution in which a customer can deposit and withdraw money. Deposit accounts can be savings account A savings account is a bank account at a retail banking, retail bank. Commo ...
, and
promissory note A promissory note, sometimes referred to as a note payable, is a legal instrument (more particularly, a financing instrument and a debt instrument), in which one party (the ''maker'' or ''issuer'') promises in writing to pay a determinate sum of ...
s, which evolved into banknotes, were issued for money deposited as a loan to the goldsmith. Thus, by the 19th century, we find in ordinary cases of deposits, of money with banking corporations, or bankers, the transaction amounts to a mere loan, or ''mutuum'', and the bank is to restore, not the same money, but an equivalent sum, whenever it is demanded and money, when paid into a bank, ceases altogether to be the money of the principal (see Parker v. Marchant, 1 Phillips 360); it is then the money of the banker, who is bound to return an equivalent, by paying a similar sum to that deposited with him, when he is asked for it. The goldsmith paid interest on deposits. Since the promissory notes were payable on demand, and the advances (loans) to the goldsmith's customers were repayable over a longer time-period, this was an early form of
fractional reserve banking Fractional-reserve banking is the system of banking in all countries worldwide, under which banks that take deposits from the public keep only part of their deposit liabilities in liquid assets as a reserve, typically lending the remainder to ...
. The promissory notes developed into an assignable instrument which could circulate as a safe and convenient form of money backed by the goldsmith's promise to pay, allowing goldsmiths to advance loans with little risk of default. Thus the goldsmiths of London became the forerunners of banking by creating new money based on credit. The
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker and debt manager, and still one ...
originated the permanent issue of banknotes in 1695. The
Royal Bank of Scotland The Royal Bank of Scotland Public Limited Company () is a major retail banking, retail and commercial bank in Scotland. It is one of the retail banking subsidiaries of NatWest Group, together with NatWest and Ulster Bank. The Royal Bank of Sco ...
established the first
overdraft An overdraft occurs when something is withdrawn in excess of what is in a current account. For financial systems, this can be funds in a bank account. In these situations the account is said to be "overdrawn". In the economic system, if there i ...
facility in 1728. By the beginning of the 19th century Lubbock's Bank had established a
bankers' clearing house Cheque clearing (or check clearing in American English) or bank clearance is the process of moving cash (or its equivalent) from the bank on which a cheque is drawn to the bank in which it was deposited, usually accompanied by the movement of the c ...
in London to allow multiple banks to clear transactions. The
Rothschilds The Rothschild family ( , ) is a wealthy Ashkenazi Jews, Ashkenazi Jewish noble banking family originally from Frankfurt. The family's documented history starts in 16th-century Frankfurt; its name is derived from the family house, Rothschild, ...
pioneered
international finance International finance (also referred to as international monetary economics or international macroeconomics) is the branch of monetary economics, monetary and macroeconomics, macroeconomic interrelations between two or more countries. Internation ...
on a large scale, financing the purchase of shares in the
Suez canal The Suez Canal (; , ') is an artificial sea-level waterway in Egypt, Indo-Mediterranean, connecting the Mediterranean Sea to the Red Sea through the Isthmus of Suez and dividing Africa and Asia (and by extension, the Sinai Peninsula from the rest ...
for the British government in 1875.


Etymology

The word'' bank'' was taken into
Middle English Middle English (abbreviated to ME) is a form of the English language that was spoken after the Norman Conquest of 1066, until the late 15th century. The English language underwent distinct variations and developments following the Old English pe ...
from
Middle French Middle French () is a historical division of the French language that covers the period from the mid-14th to the early 17th centuries. It is a period of transition during which: * the French language became clearly distinguished from the other co ...
''banque'', from Old
Italian Italian(s) may refer to: * Anything of, from, or related to the people of Italy over the centuries ** Italians, a Romance ethnic group related to or simply a citizen of the Italian Republic or Italian Kingdom ** Italian language, a Romance languag ...
''banco'', meaning "table", from
Old High German Old High German (OHG; ) is the earliest stage of the German language, conventionally identified as the period from around 500/750 to 1050. Rather than representing a single supra-regional form of German, Old High German encompasses the numerous ...
''banc, bank'' "bench, counter". Benches were used as makeshift desks or exchange counters during the
Renaissance The Renaissance ( , ) is a Periodization, period of history and a European cultural movement covering the 15th and 16th centuries. It marked the transition from the Middle Ages to modernity and was characterized by an effort to revive and sur ...
by Florentine bankers, who used to make their transactions atop desks covered by green tablecloths.


Definition

The definition of a bank varies from country to country. See the relevant country pages for more information. Under
English common law English law is the common law legal system of England and Wales, comprising mainly criminal law and civil law, each branch having its own courts and procedures. The judiciary is independent, and legal principles like fairness, equality bef ...
, a banker is defined as a person who carries on the business of banking by conducting current accounts for their customers, paying checks drawn on them as well as collecting them for their customers. In most common law jurisdictions there is a Bills of Exchange Act that codifies the law in relation to negotiable instruments, including checks, and this Act contains a statutory definition of the term ''banker'': ''banker'' includes a body of persons, whether incorporated or not, who carry on the business of banking' (Section 2, Interpretation). Although this definition seems circular, it is actually functional, because it ensures that the legal basis for bank transactions such as checks does not depend on how the bank is structured or regulated. The business of banking is in many common law countries not defined by statute but by common law, the definition above. In other English common law jurisdictions there are statutory definitions of the ''business of banking'' or ''banking business''. When looking at these definitions it is important to keep in mind that they are defining the business of banking for the purposes of the legislation, and not necessarily in general. In particular, most of the definitions are from legislation that has the purpose of regulating and supervising banks rather than regulating the actual business of banking. However, in many cases, the statutory definition closely mirrors the common law one. Examples of statutory definitions: * "banking business" means the business of receiving money on current or deposit account, paying and collecting checks drawn by or paid in by customers, the making of advances to customers, and includes such other business as the Authority may prescribe for the purposes of this Act; (Banking Act (
Singapore Singapore, officially the Republic of Singapore, is an island country and city-state in Southeast Asia. The country's territory comprises one main island, 63 satellite islands and islets, and one outlying islet. It is about one degree ...
), Section 2, Interpretation). * "banking business" means the business of either or both of the following: # receiving from the general public money on current, deposit, savings or other similar account repayable on demand or within less than months... or with a period of call or notice of less than that period; # paying or collecting checks drawn by or paid in by customers. Since the advent of
EFTPOS Electronic funds transfer at point of sale, abbreviated as EFTPOS (), is a type of payment transaction in which electronic funds transfers (EFT) are processed at a point of sale (POS) system or payment terminal usually via payment methods such as ...
(Electronic Funds Transfer at Point Of Sale), direct credit,
direct debit A direct debit or direct withdrawal is a financial transaction in which one organisation withdraws funds from a payer's bank account. Formally, the organisation that calls for the funds ("the payee") instructs their bank to collect (i.e., debit) ...
and
internet banking Online banking, also known as internet banking, virtual banking, web banking or home banking, is a system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial institut ...
, the check has lost its primacy in most banking systems as a payment instrument. This has led legal theorists to suggest that the check based definition should be broadened to include financial institutions that conduct current accounts for customers and enable customers to pay and be paid by third parties, even if they do not pay and collect checks .


Standard business

Banks act as payment agents by conducting checking or current accounts for customers, paying checks drawn by customers in the bank, and collecting checks deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as Automated Clearing House (ACH),
Wire transfer Wire transfer, bank transfer, or credit transfer, is a method of electronic funds transfer from one person or entity to another. A wire transfer can be made from one bank account to another bank account, or through a transfer of cash at a cash ...
s or telegraphic transfer,
EFTPOS Electronic funds transfer at point of sale, abbreviated as EFTPOS (), is a type of payment transaction in which electronic funds transfers (EFT) are processed at a point of sale (POS) system or payment terminal usually via payment methods such as ...
, and
automated teller machine An automated teller machine (ATM) is an electronic telecommunications device that enables customers of financial institutions to perform financial transactions, such as cash withdrawals, deposits, funds transfers, balance inquiries or account ...
s (ATMs). Banks borrow money by accepting funds deposited on current accounts, by accepting
term deposit A time deposit or term deposit (also known as a certificate of deposit in the United States, and as a guaranteed investment certificate in Canada) is a deposit in a financial institution with a specific maturity date or a period to maturity, co ...
s, and by issuing debt securities such as
banknotes A banknote or bank notealso called a bill (North American English) or simply a noteis a type of paper money that is made and distributed ("issued") by a bank of issue, payable to the bearer on demand. Banknotes were originally issued by commer ...
and bonds. Banks lend money by making advances to customers on current accounts, by making
installment loan An installment loan is a type of agreement or contract involving a loan that is repaid over time with a set number of scheduled payments; normally at least two payments are made towards the loan. The term of loan may be as little as a few months an ...
s, and by investing in marketable debt securities and other forms of money lending. Banks provide different payment services, and a bank account is considered indispensable by most businesses and individuals. Nonbanks that provide payment services such as remittance companies are normally not considered as an adequate substitute for a bank account. Banks issue new money when they make loans. In contemporary banking systems, regulators set a minimum level of reserve funds that banks must hold against the deposit liabilities created by the funding of these loans, in order to ensure that the banks can meet demands for payment of such deposits. These reserves can be acquired through the acceptance of new deposits, sale of other assets, or borrowing from other banks including the central bank.


Range of activities

Activities undertaken by banks include personal banking,
corporate banking Wholesale banking is the provision of services by banks to larger customers or organizations such as mortgage brokers, large corporate clients, mid-sized companies, real estate developers and investors, international trade finance businesses, i ...
,
investment banking Investment banking is an advisory-based financial service for institutional investors, corporations, governments, and similar clients. Traditionally associated with corporate finance, such a bank might assist in raising financial capital by und ...
,
private banking Private banking is a general description for banking, investment and other financial services provided by banks and financial institutions primarily serving high-net-worth individuals (HNWIs) – those with very high income or substantial asset ...
, transaction banking,
insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect ...
,
consumer finance Personal finance is the financial management that an individual or a family unit performs to budget, save, and spend monetary resources in a controlled manner, taking into account various financial risks and future life events. When planning ...
,
trade finance Trade finance is a phrase used to describe different strategies that are employed to make international trade easier. It signifies financing for trade, and it concerns both domestic and international trade transactions. A trade transaction requir ...
and other related.


Channels

Banks offer many different channels to access their banking and other services: * Branch, in-person banking in a retail location * Automated teller machine banking adjacent to or remote from the bank * Bank by mail: Most banks accept check deposits via mail and use mail to communicate to their customers *
Online banking Online banking, also known as internet banking, virtual banking, web banking or home banking, is a system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial institut ...
over the Internet to perform multiple types of transactions * Mobile banking is using one's mobile phone to conduct banking transactions *
Telephone banking Telephone banking is a service provided by a bank or other financial institution that enables customers to perform over the telephone a range of financial transactions that do not involve cash or financial instruments (such as checks) without the ...
allows customers to conduct transactions over the telephone with an
automated attendant In telephony, an automated attendant (also auto attendant, auto-attendant, autoattendant, automatic phone menus, AA, or virtual receptionist) allows callers to be automatically transferred to an extension without the intervention of an operator/ ...
, or when requested, with a telephone operator *
Video banking Video banking refers to banking transactions or professional banking consultations performed via a remote video connection. Video banking can be performed via purpose built banking transaction machines (similar to an automated teller machine), or v ...
performs banking transactions or professional banking consultations via a remote video and audio connection. Video banking can be performed via purpose built banking transaction machines (similar to an Automated teller machine) or via a
video conference Video is an electronic medium for the recording, copying, playback, broadcasting, and display of moving visual media. Video was first developed for mechanical television systems, which were quickly replaced by cathode-ray tube (CRT) syst ...
enabled bank branch clarification * Relationship manager, mostly for private banking or business banking, who visits customers at their homes or businesses * Direct Selling Agent, who works for the bank based on a contract, whose main job is to increase the customer base for the bank


Business models

A bank can generate revenue in a variety of different ways including interest, transaction fees and financial advice. Traditionally, the most significant method is via charging
interest In finance and economics, interest is payment from a debtor or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct f ...
on the capital it lends out to customers. The bank profits from the difference between the level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities. This difference is referred to as the spread between the cost of funds and the loan interest rate. Historically, profitability from lending activities has been cyclical and dependent on the needs and strengths of loan customers and the stage of the
economic cycle Business cycles are intervals of general Economic expansion, expansion followed by recession in economic performance. The changes in economic activity that characterize business cycles have important implications for the welfare of the general po ...
. Fees and financial advice constitute a more stable revenue stream and banks have therefore placed more emphasis on these revenue lines to smooth their financial performance. In the past 20 years, American banks have taken many measures to ensure that they remain profitable while responding to increasingly changing market conditions. * First, this includes the
Gramm–Leach–Bliley Act The Gramm–Leach–Bliley Act (GLBA), also known as the Financial Services Modernization Act of 1999, () is an act of the 106th United States Congress (1999–2001). It repealed part of the Glass–Steagall Act of 1933, removing barriers in ...
, which allows banks again to merge with investment and insurance houses. Merging banking, investment, and insurance functions allows traditional banks to respond to increasing consumer demands for "one-stop shopping" by enabling
cross-selling Cross-selling is a sales technique involving the selling of an additional product or service to an existing customer. In practice, businesses define cross-selling in many different ways. Elements that might influence the definition might includ ...
of products (which, the banks hope, will also increase profitability). * Second, they have expanded the use of
risk-based pricing Risk-based pricing is a methodology adopted by many lenders in the mortgage A mortgage loan or simply mortgage (), in civil law (legal system), civil law jurisdictions known also as a hypothec loan, is a loan used either by purchasers of re ...
from business lending to consumer lending, which means charging higher interest rates to those customers that are considered to be a higher credit risk and thus increased chance of default on loans. This helps to offset the losses from bad loans, lowers the price of loans to those who have better credit histories, and offers credit products to high risk customers who would otherwise be denied credit. * Third, they have sought to increase the methods of payment processing available to the general public and business clients. These products include
debit card A debit card, also known as a check card or bank card, is a payment card that can be used in place of cash to make purchases. The card usually consists of the bank's name, a card number, the cardholder's name, and an expiration date, on either ...
s, prepaid cards,
smart card A smart card (SC), chip card, or integrated circuit card (ICC or IC card), is a card used to control access to a resource. It is typically a plastic credit card-sized card with an Embedded system, embedded integrated circuit (IC) chip. Many smart ...
s, and credit cards. They make it easier for consumers to conveniently make transactions and smooth their consumption over time (in some countries with underdeveloped financial systems, it is still common to deal strictly in cash, including carrying suitcases filled with cash to purchase a home). :However, with the convenience of easy credit, there is also an increased risk that consumers will mismanage their financial resources and accumulate excessive debt. Banks make money from card products through interest charges and fees charged to credit and debit card holders, and transaction fees to retailers who accept the bank's cards for payments. This helps in making a profit and facilitates economic development as a whole. Recently, as banks have been faced with pressure from fintechs, new and additional business models have been suggested such as freemium, monetization of data, white-labeling of banking and payment applications, or the cross-selling of complementary products.


Products


Retail

*
ATM card An ATM card is a dedicated payment card card issued by a financial institution (i.e. a bank) which enables a customer to access their financial accounts via its and others' automated teller machines (ATMs) and, in some countries, to make approve ...
* Credit card *
Debit card A debit card, also known as a check card or bank card, is a payment card that can be used in place of cash to make purchases. The card usually consists of the bank's name, a card number, the cardholder's name, and an expiration date, on either ...
*
Savings account A savings account is a bank account at a retail banking, retail bank. Common features include a limited number of withdrawals, a lack of cheque and linked debit card facilities, limited transfer options and the inability to be overdrawn. Traditi ...
* Recurring deposit account * Fixed deposit account *
Money market account A money market account (MMA) or money market deposit account (MMDA) is a deposit account that pays interest based on current interest rates in the money markets. The interest rates paid are generally higher than those of savings accounts and tra ...
*
Certificate of deposit A certificate of deposit (CD) is a time deposit sold by banks, thrift institutions, and credit unions in the United States. CDs typically differ from savings accounts because the CD has a specific, fixed term before money can be withdrawn wit ...
(CD) *
Individual retirement account An individual retirement account (IRA) in the United States is a form of pension provided by many financial institutions that provides tax advantages for retirement savings. It is a trust that holds investment assets purchased with a taxpayer's ...
(IRA) *
Mortgage A mortgage loan or simply mortgage (), in civil law (legal system), civil law jurisdictions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners t ...
*
Mutual fund A mutual fund is an investment fund that pools money from many investors to purchase Security (finance), securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV in ...
* Personal loan (Secured and Unsecured Personal loan) * Time deposits * Current accounts *
Check (financial instrument) A cheque (or check in American English) is a document that orders a bank, building society, or credit union, to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The person writing ...
*
Automated teller machine An automated teller machine (ATM) is an electronic telecommunications device that enables customers of financial institutions to perform financial transactions, such as cash withdrawals, deposits, funds transfers, balance inquiries or account ...
(ATM) * National Electronic Fund Transfer (NEFT) *
Real-time gross settlement Real-time gross settlement (RTGS) systems are specialist funds transfer systems where the transfer of money or securities takes place from one bank to any other bank on a "real-time" and on a " gross" basis to avoid settlement risk. Settlement ...
(RTGS)


Business (or commercial/investment) banking

*
Business loan A business loan is a loan specifically intended for business purposes. As with all loans, it involves the creation of a debt, which will be repaid with added interest. There are a number of different types of business loans, including bank loans, m ...
* Capital raising ( equity /
debt Debt is an obligation that requires one party, the debtor, to pay money Loan, borrowed or otherwise withheld from another party, the creditor. Debt may be owed by a sovereign state or country, local government, company, or an individual. Co ...
/ hybrids) *
Revolving credit Revolving credit is a type of credit that does not have a fixed number of payments, in contrast to installment credit. Credit cards are an example of revolving credit used by consumers. Corporate revolving credit facilities are typically used t ...
*
Risk management Risk management is the identification, evaluation, and prioritization of risks, followed by the minimization, monitoring, and control of the impact or probability of those risks occurring. Risks can come from various sources (i.e, Threat (sec ...
(
foreign exchange The foreign exchange market (forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. By trading volume, it i ...
(FX),
interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...
s,
commodities In economics, a commodity is an economic good, usually a resource, that specifically has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. Th ...
, derivatives) *
Term loan A term loan is a monetary loan that is repaid in regular payments over a set period of time. Term loans usually last between one and ten years, but may last as long as 30 years. A term loan involves paying interest with the interest amount being a ...
*
Cash management Cash management refers to a broad area of finance involving the collection, handling, and usage of cash. It involves assessing market liquidity, cash flow, and investments. In banking, cash management, or treasury management, is a marketing term ...
services (lock box, remote deposit capture, merchant processing) * Credit services *
Securities Services A custodian bank, or simply custodian, is a specialized financial institution responsible for providing securities services. It provides post-trade services and solutions for asset owners (e.g. sovereign wealth funds, central banks, insurance comp ...


Capital and risk

Banks face a number of
risks In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environ ...
in order to conduct their business, and how well these risks are managed and understood is a key driver behind profitability, and how much
capital Capital and its variations may refer to: Common uses * Capital city, a municipality of primary status ** Capital region, a metropolitan region containing the capital ** List of national capitals * Capital letter, an upper-case letter Econom ...
a bank is required to hold. Bank capital consists principally of equity,
retained earnings The retained earnings (also known as plowback) of a corporation is the accumulated net income of the corporation that is retained by the corporation at a particular point in time, such as at the end of the reporting period. At the end of that per ...
and
subordinated debt In finance, subordinated debt (also known as subordinated loan, subordinated bond, subordinated debenture or junior debt) is debt which ranks after other debts if a company falls into liquidation or bankruptcy. Such debt is referred to as 'subord ...
. Some of the main risks faced by banks include: *
Credit risk Credit risk is the chance that a borrower does not repay a loan In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay ...
: risk of loss arising from a borrower who does not make payments as promised. *
Liquidity risk Liquidity risk is a financial risk that for a certain period of time a given financial asset, security or commodity cannot be traded quickly enough in the market without impacting the market price. Types Market liquidity – An asset cannot be ...
: risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit). *
Market risk Market risk is the risk of losses in positions arising from movements in market variables like prices and volatility. There is no unique classification as each classification may refer to different aspects of market risk. Nevertheless, the m ...
: risk that the value of a portfolio, either an investment portfolio or a trading portfolio, will decrease due to the change in value of the market risk factors. *
Operational risk Operational risk is the risk of losses caused by flawed or failed processes, policies, systems or events that disrupt business operations. Employee errors, criminal activity such as fraud, and physical events are among the factors that can tri ...
: risk arising from the execution of a company's business functions. *
Reputational risk Reputational damage is the loss to financial capital, social capital and/or market share resulting from damage to an organization's reputation. This is often measured in lost revenue, increased operating, capital or regulatory costs, or destructi ...
: a type of risk related to the trustworthiness of the business. * Macroeconomic risk: risks related to the aggregate economy the bank is operating in. The
capital requirement A capital requirement (also known as regulatory capital, capital adequacy or capital base) is the amount of capital a bank or other financial institution has to have as required by its financial regulator. This is usually expressed as a capital ...
is a
bank regulation Banking regulation and supervision refers to a form of financial regulation which subjects banks to certain requirements, restrictions and guidelines, enforced by a financial regulatory authority generally referred to as banking supervisor, wit ...
, which sets a framework within which a bank or depository institution must manage its
balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...
. The categorization of assets and capital is highly standardized so that it can be risk weighted. After the
2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...
, regulators force banks to issue '' Contingent convertible bonds'' (CoCos). These are hybrid capital securities that absorb losses in accordance with their contractual terms when the capital of the issuing bank falls below a certain level. Then debt is reduced and bank capitalization gets a boost. Owing to their capacity to absorb losses, CoCos have the potential to satisfy regulatory capital requirement.


Banks in the economy


Economic functions

The economic functions of banks include: # Issue of money, in the form of
banknotes A banknote or bank notealso called a bill (North American English) or simply a noteis a type of paper money that is made and distributed ("issued") by a bank of issue, payable to the bearer on demand. Banknotes were originally issued by commer ...
and current accounts subject to check or payment at the customer's order. These claims on banks can act as money because they are negotiable or repayable on demand, and hence valued at par. They are effectively transferable by mere delivery, in the case of banknotes, or by drawing a check that the payee may bank or cash. # Netting and settlement of payments – banks act as both collection and paying agents for customers, participating in interbank clearing and settlement systems to collect, present, be presented with, and pay payment instruments. This enables banks to economize on reserves held for settlement of payments since inward and outward payments offset each other. It also enables the offsetting of payment flows between geographical areas, reducing the cost of settlement between them. # Credit quality improvement – banks lend money to ordinary commercial and personal borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of the bank's assets and capital which provides a buffer to absorb losses without defaulting on its obligations. However, banknotes and deposits are generally unsecured; if the bank gets into difficulty and pledges assets as security, to raise the funding it needs to continue to operate, this puts the note holders and depositors in an economically subordinated position. #
Asset–liability mismatch In finance, an asset–liability mismatch occurs when the financial terms of an institution's assets and liabilities do not correspond. Several types of mismatches are possible. An asset-liability mismatch presents a material risk at institutions ...
/
Maturity transformation Maturity transformation is the practice by financial institutions of borrowing money on shorter timeframes than they lend money out. Financial markets also have the effect of maturity transformation whereby investors such as shareholders and bondhol ...
– banks borrow more on demand debt and short term debt, but provide more long-term loans. In other words, they borrow short and lend long. With a stronger credit quality than most other borrowers, banks can do this by aggregating issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and redemption of banknotes), maintaining reserves of cash, investing in marketable securities that can be readily converted to cash if needed, and raising replacement funding as needed from various sources (e.g. wholesale cash markets and securities markets). #
Money creation Money creation, or money issuance, is the process by which the money supply of a country, or an economic or monetary region,Such as the Eurozone or ECCAS is increased. In most modern economies, money is created by both central banks and comm ...
/destruction – whenever a bank gives out a loan in a
fractional-reserve banking Fractional-reserve banking is the system of banking in all countries worldwide, under which banks that take deposits from the public keep only part of their deposit liabilities in liquid assets as a reserve, typically lending the remainder to ...
system, a new sum of money is created and conversely, whenever the principal on that loan is repaid money is destroyed.


Bank crisis

Banks are susceptible to many forms of risk which have triggered occasional systemic crises. These include
liquidity risk Liquidity risk is a financial risk that for a certain period of time a given financial asset, security or commodity cannot be traded quickly enough in the market without impacting the market price. Types Market liquidity – An asset cannot be ...
(where many depositors may request withdrawals in excess of available funds),
credit risk Credit risk is the chance that a borrower does not repay a loan In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay ...
(the chance that those who owe money to the bank will not repay it), and
interest rate risk Interest rate risk is the risk that arises for bond owners from fluctuating interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The ...
(the possibility that the bank will become unprofitable, if rising interest rates force it to pay relatively more on its deposits than it receives on its loans). Banking crises have developed many times throughout history when one or more risks have emerged for the banking sector as a whole. Prominent examples include the
bank run A bank run or run on the bank occurs when many Client (business), clients withdraw their money from a bank, because they believe Bank failure, the bank may fail in the near future. In other words, it is when, in a fractional-reserve banking sys ...
that occurred during the
Great Depression The Great Depression was a severe global economic downturn from 1929 to 1939. The period was characterized by high rates of unemployment and poverty, drastic reductions in industrial production and international trade, and widespread bank and ...
, the U.S.
Savings and Loan crisis The savings and loan crisis of the 1980s and 1990s (commonly dubbed the S&L crisis) was the failure of approximately a third of the savings and loan associations (S&Ls or thrifts) in the United States between 1986 and 1995. These thrifts were b ...
in the 1980s and early 1990s, the Japanese banking crisis during the 1990s, and the sub-prime mortgage crisis in the 2000s. The 2023 global banking crisis is the latest of these crises: In March 2023, liquidity shortages and bank insolvencies led to three bank failures in the United States, and within two weeks, several of the world's largest banks failed or were shut down by regulators


Size of global banking industry

Assets of the largest 1,000 banks in the world grew by 6.8% in the 2008–2009 financial year to a record US$96.4 trillion while profits declined by 85% to US$115 billion. Growth in assets in adverse market conditions was largely a result of recapitalization. EU banks held the largest share of the total, 56% in 2008–2009, down from 61% in the previous year. Asian banks' share increased from 12% to 14% during the year, while the share of US banks increased from 11% to 13%. Fee revenue generated by global investment in banking totaled US$66.3 billion in 2009, up 12% on the previous year. charts 7–8 The United States has the most banks in the world in terms of institutions (5,330 as of 2015) and possibly branches (81,607 as of 2015). This is an indicator of the geography and regulatory structure of the US, resulting in a large number of small to medium-sized institutions in its banking system. As of November 2009, China's top four banks have in excess of 67,000 branches (
ICBC The Industrial and Commercial Bank of China (ICBC; zh, 中国工商银行) is a Chinese partially state-owned multinational banking and financial services corporation headquartered in Beijing, China. It is the largest of the " big four" banks ...
:18000+, BOC:12000+, CCB:13000+, ABC:24000+) with an additional 140 smaller banks with an undetermined number of branches. Japan had 129 banks and 12,000 branches. In 2004, Germany, France, and Italy each had more than 30,000 branches – more than double the 15,000 branches in the United Kingdom.


Mergers and acquisitions

Between 1985 and 2018 banks engaged in around 28,798 mergers or acquisitions, either as the acquirer or the target company. The overall known value of these deals cumulates to around 5,169 bil. USD. In terms of value, there have been two major waves (1999 and 2007) which both peaked at around 460 bil. USD followed by a steep decline (−82% from 2007 until 2018). Here is a list of the largest deals in history in terms of value with participation from at least one bank:


Regulation

Currently, commercial banks are regulated in most jurisdictions by government entities and require a special bank license to operate. Usually, the definition of the business of banking for the purposes of regulation is extended to include acceptance of deposits, even if they are not repayable to the customer's order – although money lending, by itself, is generally not included in the definition. Unlike most other regulated industries, the regulator is typically also a participant in the market, being either publicly or privately governed
central bank A central bank, reserve bank, national bank, or monetary authority is an institution that manages the monetary policy of a country or monetary union. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the mo ...
. Central banks also typically have a monopoly on the business of issuing
banknote A banknote or bank notealso called a bill (North American English) or simply a noteis a type of paper money that is made and distributed ("issued") by a bank of issue, payable to the bearer on demand. Banknotes were originally issued by commerc ...
s. However, in some countries, this is not the case. In the UK, for example, the
Financial Services Authority The Financial Services Authority (FSA) was a quasi-judicial body accountable for the regulation of the financial services industry in the United Kingdom between 2001 and 2013. It was founded as the Securities and Investments Board (SIB) in 1985 ...
licenses banks, and some commercial banks (such as the
Bank of Scotland The Bank of Scotland plc (Scottish Gaelic: ''Banca na h-Alba'') is a commercial bank, commercial and clearing (finance), clearing bank based in Edinburgh, Scotland, and is part of the Lloyds Banking Group. The bank was established by the Par ...
) issue their own banknotes in addition to those issued by the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker and debt manager, and still one ...
, the UK government's central bank. Banking law is based on a contractual analysis of the relationship between the ''bank'' (defined above) and the ''customer'' – defined as any entity for which the bank agrees to conduct an account. The law implies rights and obligations into this relationship as follows: * The bank account balance is the financial position between the bank and the customer: when the account is in credit, the bank owes the balance to the customer; when the account is overdrawn, the customer owes the balance to the bank. * * The bank agrees to pay the customer's checks up to the amount standing to the credit of the customer's account, plus any agreed overdraft limit. * * The bank may not pay from the customer's account without a mandate from the customer, e.g. a check drawn by the customer. * * The bank agrees to promptly collect the checks deposited to the customer's account as the customer's agent and to credit the proceeds to the customer's account. * * And, the bank has a right to combine the customer's accounts since each account is just an aspect of the same credit relationship. * * The bank has a
lien A lien ( or ) is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. The owner of the property, who grants the lien, is referred to as the ''lienee'' and the pers ...
on checks deposited to the customer's account, to the extent that the customer is indebted to the bank. * * The bank must not disclose details of transactions through the customer's account – unless the customer consents, there is a public duty to disclose, the bank's interests require it, or the law demands it. * * The bank must not close a customer's account without reasonable notice, since checks are outstanding in the ordinary course of business for several days. These implied contractual terms may be modified by express agreement between the customer and the bank. The statutes and regulations in force within a particular jurisdiction may also modify the above terms or create new rights, obligations, or limitations relevant to the bank-customer relationship. Some types of financial institutions, such as
building societies A building society is a financial institution owned by its members as a mutual organization, which offers banking institution, banking and related financial services, especially savings and mortgage loan, mortgage lending. They exist in the Unit ...
and
credit unions A credit union is a member-owned nonprofit cooperative financial institution. They may offer financial services equivalent to those of commercial banks, such as share accounts (savings accounts), share draft accounts ( cheque accounts), credit ...
, may be partly or wholly exempt from bank license requirements, and therefore regulated under separate rules. The requirements for the issue of a bank license vary between jurisdictions but typically include: * Minimum capital * Minimum capital ratio * 'Fit and Proper' requirements for the bank's controllers, owners, directors, or senior officers * Approval of the bank's business plan as being sufficiently prudent and plausible.


Different types of banking

Banks' activities can be divided into: *
retail banking Retail banking, also known as consumer banking or personal banking, is the provision of services by a bank to the general public, rather than to companies, corporations or other banks, which are often described as wholesale banking (corporate ...
, dealing directly with individuals and small businesses; * business banking, providing services to mid-market business; *
corporate banking Wholesale banking is the provision of services by banks to larger customers or organizations such as mortgage brokers, large corporate clients, mid-sized companies, real estate developers and investors, international trade finance businesses, i ...
, directed at large business entities; *
private banking Private banking is a general description for banking, investment and other financial services provided by banks and financial institutions primarily serving high-net-worth individuals (HNWIs) – those with very high income or substantial asset ...
, providing wealth management services to
high-net-worth individual In the financial services industry, a high-net-worth individual (HNWI) is a person who maintains liquid assets at or above a certain threshold. Typically the criterion is that the person's financial assets (excluding their primary residence) are ...
s and families; *
investment banking Investment banking is an advisory-based financial service for institutional investors, corporations, governments, and similar clients. Traditionally associated with corporate finance, such a bank might assist in raising financial capital by und ...
, relating to activities on the
financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial marke ...
. Most banks are profitmaking private enterprises. However, some are owned by the government, or are nonprofits.


Types of banks

*
Commercial bank A commercial bank is a financial institution that accepts deposits from the public and gives loans for the purposes of consumption and investment to make a profit. It can also refer to a bank or a division of a larger bank that deals with whol ...
s: the term used for a normal bank to distinguish it from an investment bank. After the
Great Depression The Great Depression was a severe global economic downturn from 1929 to 1939. The period was characterized by high rates of unemployment and poverty, drastic reductions in industrial production and international trade, and widespread bank and ...
, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to
capital market A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers ...
activities. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses. *
Community banks A community bank is a depository institution that is typically locally owned and operated. Community banks tend to focus on the needs of the businesses and families where the bank holds branches and offices. Lending decisions are made by people ...
: locally operated financial institutions that empower employees to make local decisions to serve their customers and partners. * Community development banks: regulated banks that provide financial services and credit to under-served markets or populations. * Land development banks: The special banks providing long-term loans are called land development banks (LDB). The history of LDB is quite old. The first LDB was started at Jhang in Punjab in 1920. The main objective of the LDBs is to promote the development of land, agriculture and increase the agricultural production. The LDBs provide long-term finance to members directly through their branches. * Credit unions or Cooperative banking, co-operative banks: not-for-profit cooperatives owned by the depositors and often offering rates more favorable than for-profit banks. Typically, membership is restricted to employees of a particular company, residents of a defined area, members of a certain labor union, union or religious organizations, and their immediate families. * Postal savings system, Postal savings banks: savings banks associated with national postal systems. * Private banking, Private banks: banks that manage the assets of high-net-worth individuals. Historically a minimum of US$1 million was required to open an account, however, over the last years, many private banks have lowered their entry hurdles to US$350,000 for private investors. * Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks. * Savings banks: in Europe, savings banks took their roots in the 19th or sometimes even in the 18th century. Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative; in others, socially committed individuals created foundations to put in place the necessary infrastructure. Nowadays, European savings banks have kept their focus on retail banking: payments, savings products, credits, and insurances for individuals or small and medium-sized enterprises. Apart from this retail focus, they also differ from commercial banks by their broadly decentralized distribution network, providing local and regional outreach – and by their socially responsible approach to business and society. * Ethical banks: banks that prioritize the transparency of all operations and make only what they consider to be socially responsible investments. * A Direct bank, direct or internet-only bank is a banking operation without any physical bank branches. Transactions are usually accomplished using Automated teller machine, ATMs and Electronic funds transfer, electronic transfers and direct deposits through an online interface.


Types of investment banks

* Investment banks "underwrite" (guarantee the sale of) stock and bond issues, provide investment management, and advize corporations on
capital market A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers ...
activities such as M&A, trade for their own accounts, make markets, provide Securities Services, securities services to institutional clients. * Merchant banks were traditionally banks which engaged in
trade finance Trade finance is a phrase used to describe different strategies that are employed to make international trade easier. It signifies financing for trade, and it concerns both domestic and international trade transactions. A trade transaction requir ...
. The modern definition, however, refers to banks which provide capital to firms in the form of shares rather than loans. Unlike venture caps, they tend not to invest in new companies.


Combination banks

* Universal banks, more commonly known as financial services companies, engage in several of these activities. These big banks are very diversified groups that, among other services, also distribute insurance – hence the term bancassurance, a portmanteau, portmanteau word combining "banque or bank" and "assurance", signifying that both banking and insurance are provided by the same corporate entity.


Other types of banks

* Central banks are normally government-owned and charged with quasi-regulatory responsibilities, such as supervising commercial banks, or controlling the cash
interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...
. They generally provide liquidity to the banking system and act as the lender of last resort in event of a crisis. * Islamic banks adhere to the concepts of Sharia, Islamic law. This form of banking revolves around several well-established principles based on Islamic laws. All banking activities must avoid interest, a concept that is forbidden in Islam. Instead, the bank earns profit (Markup (business), markup) and fees on the financing facilities that it extends to customers.


Challenges within the banking industry


United States

The United States banking industry is one of the most heavily regulated and guarded in the world, with multiple specialized and focused regulators. All banks with FDIC-insured deposits have the Federal Deposit Insurance Corporation (FDIC) as a regulator. However, for soundness examinations (i.e., whether a bank is operating in a sound manner), the Federal Reserve is the primary federal regulator for Fed-member state banks; the Office of the Comptroller of the Currency (OCC) is the primary federal regulator for national banks. State non-member banks are examined by the state agencies as well as the FDIC. National banks have one primary regulator – the OCC. Each regulatory agency has its own set of rules and regulations to which banks and thrifts must adhere. The Federal Financial Institutions Examination Council (FFIEC) was established in 1979 as a formal inter-agency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions. Although the FFIEC has resulted in a greater degree of regulatory consistency between the agencies, the rules and regulations are constantly changing. In addition to changing regulations, changes in the industry have led to consolidations within the Federal Reserve, FDIC, OTS, and OCC. Offices have been closed, supervisory regions have been merged, staff levels have been reduced and budgets have been cut. The remaining regulators face an increased burden with an increased workload and more banks per regulator. While banks struggle to keep up with the changes in the regulatory environment, regulators struggle to manage their workload and effectively regulate their banks. The impact of these changes is that banks are receiving less hands-on assessment by the regulators, less time spent with each institution, and the potential for more problems slipping through the cracks, potentially resulting in an overall increase in bank failures across the United States. The changing economic environment has a significant impact on banks and thrifts as they struggle to effectively manage their interest rate spread in the face of low rates on loans, rate competition for deposits and the general market changes, industry trends and economic fluctuations. It has been a challenge for banks to effectively set their growth strategies with the recent economic market. A rising interest rate environment may seem to help financial institutions, but the effect of the changes on consumers and businesses is not predictable and the challenge remains for banks to grow and effectively manage the spread to generate a return to their shareholders. The management of the banks' asset portfolios also remains a challenge in today's economic environment. Loans are a bank's primary asset category and when loan quality becomes suspect, the foundation of a bank is shaken to the core. While always an issue for banks, declining asset quality has become a big problem for financial institutions. There are several reasons for this, one of which is the lax attitude some banks have adopted because of the years of "good times." The potential for this is exacerbated by the reduction in the regulatory oversight of banks and in some cases depth of management. Problems are more likely to go undetected, resulting in a significant impact on the bank when they are discovered. In addition, banks, like any business, struggle to cut costs and have consequently eliminated certain expenses, such as adequate employee training programs. Banks also face a host of other challenges such as aging ownership groups. Across the country, many banks' management teams and boards of directors are aging. Banks also face ongoing pressure from shareholders, both public and private, to achieve earnings and growth projections. Regulators place added pressure on banks to manage the various categories of risk. Banking is also an extremely competitive industry. Competing in the financial services industry has become tougher with the entrance of such players as insurance agencies, credit unions, check cashing services, credit card companies, etc. As a reaction, banks have developed their activities in financial instruments, through financial market operations such as brokerage firm, brokerage and have become big players in such activities. Another major challenge is the aging infrastructure, also called legacy IT. Backend systems were built decades ago and are incompatible with new applications. Fixing bugs and creating interfaces costs huge sums, as knowledgeable programmers become scarce.


Loan activities of banks

To be able to provide home buyers and builders with the funds needed, banks must compete for deposits. The phenomenon of disintermediation had to dollars moving from savings accounts and into direct market instruments such as United States Department of the Treasury, U.S. Department of Treasury obligations, agency securities, and corporate debt. One of the greatest factors in recent years in the movement of deposits was the tremendous growth of money market funds whose higher interest rates attracted consumer deposits. To compete for deposits, US savings institutions offer many different types of plans: * Passbook or ordinary deposit accounts  – permit any amount to be added to or withdrawn from the account at any time. * NOW and Super NOW accounts  – function like checking accounts but earn interest. A minimum balance may be required on Super NOW accounts. *
Money market account A money market account (MMA) or money market deposit account (MMDA) is a deposit account that pays interest based on current interest rates in the money markets. The interest rates paid are generally higher than those of savings accounts and tra ...
s  – carry a monthly limit of preauthorized transfers to other accounts or persons and may require a minimum or average balance. * Certificate accounts  – subject to loss of some or all interest on withdrawals before maturity. * Notice accounts  – the equivalent of certificate accounts with an indefinite term. Savers agree to notify the institution a specified time before withdrawal. *
Individual retirement account An individual retirement account (IRA) in the United States is a form of pension provided by many financial institutions that provides tax advantages for retirement savings. It is a trust that holds investment assets purchased with a taxpayer's ...
s (IRAs) and Keogh plans  – a form of retirement savings in which the funds deposited and interest earned are exempt from income tax until after withdrawal. * Checking accounts  – offered by some institutions under definite restrictions. * All withdrawals and deposits are completely the sole decision and responsibility of the account owner unless the parent or guardian is required to do otherwise for legal reasons. * Club accounts and other savings accounts  – designed to help people save regularly to meet certain goals.


Investment for the fossil fuel industry

Even after The Paris Agreement has entered into force, large banks in developed country, developed countries such as the U.S. and Japan are heavily financing the fossil fuel industry. This practice has been condemned as going against climate action.


Types of accounts

Bank statements are accounting records produced by banks under the various accounting standards of the world. Under Generally accepted accounting principles, GAAP there are two kinds of accounts: debit and credit. Credit accounts are Revenue, Equity and Liabilities. Debit Accounts are Assets and Expenses. The bank credits a ''credit account'' to increase its balance, and debits a ''credit account'' to decrease its balance. The customer debits his or her savings/bank (asset) in his ledger when making a deposit (and the account is normally in debit), while the customer credits a credit card (liability) account in his ledger every time he spends money (and the account is normally in credit). When the customer reads his bank statement, the statement will show a credit to the account for deposits, and debits for withdrawals of funds. The customer with a positive balance will see this balance reflected as a credit balance on the bank statement. If the customer is overdrawn, he will have a negative balance, reflected as a debit balance on the bank statement.


Brokered deposits

One source of deposits for banks is deposit brokers who deposit large sums of money on behalf of investors through trust corporations. This money will generally go to the banks which offer the most favorable terms, often better than those offered local depositors. It is possible for a bank to engage in business with no local deposits at all, all funds being brokered deposits. Accepting a significant quantity of such deposits, or "hot money" as it is sometimes called, puts a bank in a difficult and sometimes risky position, as the funds must be lent or invested in a way that yields a return sufficient to pay the high interest being paid on the brokered deposits. This may result in risky decisions and even in eventual failure of the bank. Banks that failed in the United States during the
2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...
had, on average, four times more brokered deposits as a percent of their deposits than the average bank. Such deposits, combined with risky real estate investments, factored into the savings and loan crisis of the 1980s. Regulation of brokered deposits is opposed by banks on the grounds that the practice can be a source of external funding to growing communities with insufficient local deposits. There are different types of accounts: saving, recurring and current accounts.


Custodial accounts

Custodial accounts are accounts in which assets are held for a third party. For example, businesses that accept custody of funds for clients prior to their conversion, return, or transfer may have a custodial account at a bank for these purposes.


Globalization

In modern times there have been huge reductions to the barriers of global competition in the banking industry. Increases in telecommunications and other financial technologies, such as Bloomberg Terminal, Bloomberg, have allowed banks to extend their reach all over the world since they no longer have to be near customers to manage both their finances and their risk. The growth in cross-border activities has also increased the demand for banks that can provide various services across borders to different nationalities. Despite these reductions in barriers and growth in cross-border activities, the banking industry is nowhere near as globalized as some other industries. In the US, for instance, very few banks even worry about the Riegle–Neal Act, which promotes more efficient interstate banking. In the vast majority of nations around the globe, the market share for foreign owned banks is currently less than a tenth of all market shares for banks in a particular nation. One reason the banking industry has not been fully globalized is that it is more convenient to have local banks provide loans to small businesses and individuals. On the other hand, for large corporations, it is not as important in what nation the bank is in since the corporation's financial information is available around the globe. There have been two significant attempts to overcome the industry's traditional focus on competing at the national level rather than the international level. In the 1980s, Citigroup and HSBC both began to develop large networks of retail bank branches in numerous countries around the world, in order to become global consumer banking brands. But in 2021, Citigroup initiated an exit from retail banking outside of its core U.S. market, while in 2022, HSBC initiated an exit from the U.S. retail market (except for its wealth management business) and then in 2023 put its retail operations in a dozen other countries under review for sale or closure. According to Wells Fargo, both banks were operating on the assumption that globalization would lead to the rise of large numbers of consumers who would regularly travel across borders for both work and play, but that "global consumer customer never materialized".


See also

Terms and concepts: * Anonymous banking *
Automated teller machine An automated teller machine (ATM) is an electronic telecommunications device that enables customers of financial institutions to perform financial transactions, such as cash withdrawals, deposits, funds transfers, balance inquiries or account ...
* Banking agent * Bank rate * Bank regulation ** Banking license * Bankers' bonuses * CAMELS rating system * Cash advance * Credit Card * Call report *
Check (financial instrument) A cheque (or check in American English) is a document that orders a bank, building society, or credit union, to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The person writing ...
* Coin * Deposit account * Deposit creation multiplier * Electronic funds transfer * Ethical banking * Factoring (finance) * Finance * Fractional-reserve banking * Full-reserve banking * Internet banking * International Bank Account Number * Investment banking * Loan ** Pre-qualification ** Pre-approval ** Subprime * Mobile banking * Money * Money laundering * Narrow banking * Overdraft * Overdraft protection * Piggy bank * Pigmy Deposit Scheme * Private banking * Private credit * Shell corporation * Soft probe * Stock statement * Substitute check * SWIFT * Tax haven * * Venture capital * Wealth management *
Wire transfer Wire transfer, bank transfer, or credit transfer, is a method of electronic funds transfer from one person or entity to another. A wire transfer can be made from one bank account to another bank account, or through a transfer of cash at a cash ...
Types of institutions: * Bad bank * Bankers' bank * Building society * Central bank * Cooperative bank * Credit union * Ethical bank * Industrial loan company * Investment bank **Boutique investment bank **Bulge bracket **Independent advisory firm * Islamic banking * Mortgage bank * Mutual savings bank * Merchant bank * Non-bank financial institution * Offshore bank * Person-to-person lending * Private bank * Public bank * Savings and loan association * Savings bank * Shadow bank * Sparebank * Zombie bank Crime: * Bank fraud * Bank robbery * Check fraud * Cyber Crime * Mortgage fraud * Usury * White-collar crime Related lists: * List of largest banks * List of accounting topics * List of bank mergers in the United States * List of bank runs * List of banking crises * List of banks * List of economics topics * List of finance topics * List of largest U.S. bank failures * List of oldest banks * List of stock exchanges Banking by country * Banking in Australia * Banking in Austria * Banking in Bangladesh * Banking in Belgium * Banking in Canada * Banking in China * Banking in France * Banking in Germany * Banking in Greece * Banking in Hong Kong * Banking in Iran * Banking in India * Banking in Israel * Banking in Italy * Japanese financial system, Banking in Japan * Banking in Pakistan * Banking in Qatar * Banking in Russia * Banking in Spain * Banking in Singapore * Banking in Switzerland * Banking in Tunisia * Banking in Turkey * Banking in the United Kingdom * Banking in the United States


References


Further reading

* Born, Karl Erich. ''International Banking in the 19th and 20th Centuries'' (St Martin's, 1983
online
* *


External links


Guardian Datablog
– World's Biggest Banks (2009)

from ''UCB Libraries GovPubs'' (archived January 11, 2012) *
A Guide to the National Banking System
' (PDF). Office of the Comptroller of the Currency (OCC), Washington, D.C. Provides an overview of the national banking system of the US, its regulation, and the OCC. {{Authority control Banks, Banking, Legal entities Italian inventions Economic history of Italy