How banks work


Banks overview

A bank is a business which providesinterest it charges in its lending
financial services, usually for profit.activities. This difference is referred
A commercial bank accepts deposits fromto as the spread between the cost of
customers and in turn makes loans basedfunds and the loan interest rate.
on those deposits. Traditional bankingHistorically, profitability from lending
services include receiving deposits ofactivities has been cyclic and dependent
money, lending money and processingon the needs and strengths of loan
transactions. Some banks (called Bankscustomers. In recent history, investors
of issue) issue banknotes as legalhave demanded a more stable revenue
tender. Many banks offer ancillarystream and banks have therefore placed
financial services to make additionalmore emphasis on transaction fees,
profit; for example: selling insuranceprimarily loan fees but also including
products, investment products or stockservice charges on array of deposit
broking.activities and ancillary services
Currently in most jurisdictions(international banking, foreign
commercial banks are regulated andexchange, insurance, investments, wire
require permission to operate.transfers, etc.). However, lending
Operational authority is granted by bankactivities still provide the bulk of a
regulatory authorities and providecommercial bank's income.
rights to conduct the most fundamentalThe name bank derives from the Italian
banking services such as acceptingword banco, desk, used during the
deposits and making loans. A commercialRenaissance by Florentines bankers, who
bank is usually defined as anused to make their transactions above a
institution that both accepts depositsdesk covered by a green tablecloth
and makes loans; there are alsoServices typically offered by banks
financial institutions that provideAlthough the basic type of services
selected banking services withoutoffered by a bank depends upon the type
meeting the legal definition of a bankof bank and the country, services
(see banking institutions).provided usually include:
Banks have a long history, and have* Taking deposits from their customers
influenced economies and politics forand issuing checking and savings
centuries. In history, the primaryaccounts to individuals and businesses
purpose of a bank was to provide* Extending loans to individuals and
liquidity to trading companies. Banksbusinesses
advanced funds to allow businesses to* Cashing cheques
purchase inventory, and collected those* Facilitating money transactions such
funds back with interest when the goodsas wire transfers and cashiers checks
were sold. For centuries, the banking* Issuing credit cards, ATM cards, and
industry only dealt with businesses, notdebit cards
consumers. Commercial lending today is a* Storing valuables, particularly in a
very intense activity, with bankssafe deposit box
carefully analysing the financial* Cashing and distributing bank rolls
condition of its business clients to* Consumer & commercial financial
determine the level of risk in each loanadvisory services
transaction. Banking services have* Pension & retirement planning
expanded to include services directed atFinancial transactions can be performed
individuals and risk in these muchthrough many different channels:
smaller transactions are pooled.* Branch
A bank generates a profit from the* ATM
differential between what level of* Mail
interest it pays for deposits and other* Telephone banking
sources of funds, and what level of* Online banking



1 A B C D 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103