| A bank is a business which provides financial services, | | | | cost of funds and the loan interest rate. Historically, |
| usually for profit. A commercial bank accepts deposits | | | | profitability from lending activities has been cyclic and |
| from customers and in turn makes loans based on | | | | dependent on the needs and strengths of loan |
| those deposits. Traditional banking services include | | | | customers. In recent history, investors have |
| receiving deposits of money, lending money and | | | | demanded a more stable revenue stream and banks |
| processing transactions. Some banks (called Banks of | | | | have therefore placed more emphasis on transaction |
| issue) issue banknotes as legal tender. Many banks | | | | fees, primarily loan fees but also including service |
| offer ancillary financial services to make additional | | | | charges on array of deposit activities and ancillary |
| profit; for example: selling insurance products, | | | | services (international banking, foreign exchange, |
| investment products or stock broking. | | | | insurance, investments, wire transfers, etc.). |
| Currently in most jurisdictions commercial banks are | | | | However, lending activities still provide the bulk of a |
| regulated and require permission to operate. | | | | commercial bank's income. |
| Operational authority is granted by bank regulatory | | | | The name bank derives from the Italian word banco, |
| authorities and provide rights to conduct the most | | | | desk, used during the Renaissance by Florentines |
| fundamental banking services such as accepting | | | | bankers, who used to make their transactions above |
| deposits and making loans. A commercial bank is | | | | a desk covered by a green tablecloth |
| usually defined as an institution that both accepts | | | | Services typically offered by banks |
| deposits and makes loans; there are also financial | | | | Although the basic type of services offered by a |
| institutions that provide selected banking services | | | | bank depends upon the type of bank and the |
| without meeting the legal definition of a bank (see | | | | country, services provided usually include: |
| banking institutions). | | | | * Taking deposits from their customers and issuing |
| Banks have a long history, and have influenced | | | | checking and savings accounts to individuals and |
| economies and politics for centuries. In history, the | | | | businesses |
| primary purpose of a bank was to provide liquidity to | | | | * Extending loans to individuals and businesses |
| trading companies. Banks advanced funds to allow | | | | * Cashing cheques |
| businesses to purchase inventory, and collected those | | | | * Facilitating money transactions such as wire |
| funds back with interest when the goods were sold. | | | | transfers and cashiers checks |
| For centuries, the banking industry only dealt with | | | | * Issuing credit cards, ATM cards, and debit cards |
| businesses, not consumers. Commercial lending today | | | | * Storing valuables, particularly in a safe deposit box |
| is a very intense activity, with banks carefully | | | | * Cashing and distributing bank rolls |
| analysing the financial condition of its business clients | | | | * Consumer & commercial financial advisory services |
| to determine the level of risk in each loan transaction. | | | | * Pension & retirement planning |
| Banking services have expanded to include services | | | | Financial transactions can be performed through many |
| directed at individuals and risk in these much smaller | | | | different channels: |
| transactions are pooled. | | | | * Branch |
| A bank generates a profit from the differential | | | | * ATM |
| between what level of interest it pays for deposits | | | | * Mail |
| and other sources of funds, and what level of | | | | * Telephone banking |
| interest it charges in its lending activities. This | | | | * Online banking |
| difference is referred to as the spread between the | | | | |