How banks work

• Banks overview
• Types of banks
• Savings and loan...

Types of banks Banks' activities can be divided into retail their focus on retail banking: payments, banking, dealing directly with individuals savings products, credits and insurances for and small businesses; business banking, individuals or small and medium-sized providing services to mid-market business; enterprises. Apart from this retail focus, corporate banking, directed at large business they also differ from commercial banks by entities; and investment banking, relating to their broadly decentralised distribution activities on the financial markets. Most network, providing local and regional banks are profit-making, private enterprises. outreach and by their socially responsible However, some are owned by government, or are approach  to  business  and  society. non-profits. Building societies and Landesbanks: conduct Central banks are non-commercial bodies or retail  banking. government agencies often charged with controlling interest rates and money supply Ethical banks: banks that prioritize the across the whole economy. They generally transparency of all operations and make only provide liquidity to the banking system and social-responsible  investments. act as Lender of last resort in event of a crisis. Types  of  investment  banks Types  of  retail  banks Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for Commercial bank: the term used for a normal their own accounts, make markets, and advise bank to distinguish it from an investment corporations on capital markets activities bank. After the Great Depression, the U.S. such  as  mergers  and  acquisitions. Congress required that banks only engage in banking activities, whereas investment banks Merchant banks were traditionally banks which were limited to capital market activities. engaged in trade financing. The modern Since the two no longer have to be under definition, however, refers to banks which separate ownership, some use the term provide capital to firms in the form of "commercial bank" to refer to a bank or a shares rather than loans. Unlike Venture division of a bank that mostly deals with capital firms, they tend not to invest in new deposits and loans from corporations or large companies. businesses. Both  combined Community Banks: locally operated financial institutions that empower employees to make Universal banks, more commonly known as a local decisions to serve their customers and financial services company, engage in several the  partners of these activities. For example, First Bank (a very large bank) is involved in commercial Community development banks: regulated banks and retail lending, and its subsidiaries in that provide financial services and credit to tax-havens offer offshore banking services to underserved  markets  or  populations. customers in other countries. Other large financial institutions are similarly Postal savings banks: savings banks diversified and engage in multiple associated  with  national  postal  systems. activities. In Europe and Asia, big banks are very diversified groups that, among other Private banks: manage the assets of high net services, also distribute insurance, hence worth  individuals. the  term  bancassurance. Offshore banks: banks located in Other  types  of  banks jurisdictions with low taxation and regulation. Many offshore banks are Islamic  Banking essentially  private  banks. Islamic banks adhere to the concepts of Savings bank: in Europe, savings banks take Islamic law. Islamic banking revolves around their roots in the 19th or sometimes even several well established concepts which are 18th century. Their original objective was to based on Islamic canons. Since the concept of provide easily accessible savings products to interest is forbidden in Islam, all banking all strata of the population. In some activities must avoid interest. Instead of countries, savings banks were created on interest, the bank earns profit (mark-up) and public initiative, while in others socially fees on financing facilities that it extends committed individuals created foundations to to the customers. Also, deposit makers earn a put in place the necessary infrastructure. share of the bank’s profit as opposed Nowadays, European savings banks have kept to a predetermined interest 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