A bank is a financial institution that accepts
deposits from the public and creates a
demand deposit while simultaneously making
loans. 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 t ...
s.
Because 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 operating in almost all countries worldwide, under which banks that take deposits from the public are required to hold a proportion of their deposit liabilities in liquid assets as a reserve, ...
, under which banks hold liquid assets equal to only a portion of their current liabilities. In addition to other regulations intended to ensure
liquidity, 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 countries ...
.
Banking in its modern sense evolved in the fourteenth century in the prosperous cities of
Renaissance Italy but in many ways functioned as a continuation of ideas and concepts of
credit and
lending that had their roots in the
ancient world. In the
history of banking, a number of
banking dynasties notably, the
Medicis
The House of Medici ( , ) was an Italian banking family and political dynasty that first began to gather prominence under Cosimo de' Medici, in the Republic of Florence during the first half of the 15th century. The family originated in the Mu ...
, the
Fugger
The House of Fugger () is a German upper bourgeois 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 vent ...
s, the
Welsers, the
Berenbergs, and the
Rothschilds
The Rothschild family ( , ) is a wealthy Ashkenazi Jewish family originally from Frankfurt that rose to prominence with Mayer Amschel Rothschild (1744–1812), a court factor to the German Landgraves of Hesse-Kassel in the Free City of F ...
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. Banking servi ...
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 oldest or second oldest bank ...
(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 commodi ...
is
Berenberg Bank
Joh. Berenberg, Gossler & Co. KG, commonly known as Berenberg Bank and also branded as simply Berenberg, is a multinational full-service investment bank based in Hamburg, Germany.
It was founded by the Flemish Berenberg family in 1590 () and ...
(founded in 1590).
History
Ancient
The concept of banking may have begun in the times of ancient
Assyria and
Babylonia
Babylonia (; Akkadian: , ''māt Akkadī'') was an ancient Akkadian-speaking state and cultural area based in the city of Babylon in central-southern Mesopotamia (present-day Iraq and parts of Syria). It emerged as an Amorite-ruled state c. ...
with
merchant
A merchant is a person who trades in commodities produced by other people, especially one who trades with foreign countries. Historically, a merchant is anyone who is involved in business or trade. Merchants have operated for as long as indust ...
s offering loans of grain as
collateral
Collateral may refer to:
Business and finance
* Collateral (finance), a borrower's pledge of specific property to a lender, to secure repayment of a loan
* Marketing collateral, in marketing and sales
Arts, entertainment, and media
* ''Collate ...
within a
barter system. Lenders in
ancient Greece and during the
Roman Empire added two important innovations: they accepted
deposits and
changed money. Archaeology from this period in
Iran,
ancient China
The earliest known written records of the history of China date from as early as 1250 BC, from the Shang dynasty (c. 1600–1046 BC), during the reign of king Wu Ding. Ancient historical texts such as the '' Book of Documents'' (early chapte ...
and
India also shows evidence of
money lending.
Medieval
The present era of banking can be traced to medieval and early
Renaissance Italy, to the rich cities in the centre and north like
Florence,
Lucca,
Siena,
Venice
Venice ( ; it, Venezia ; vec, Venesia or ) is a city in northeastern Italy and the capital of the Veneto Regions of Italy, region. It is built on a group of 118 small islands that are separated by canals and linked by over 400 ...
and
Genoa. The
Bardi and
Peruzzi families dominated banking in 14th-century Florence, establishing branches in many other parts of Europe.
Giovanni di Bicci de' Medici
Giovanni di Bicci de' Medici (c. 1360 – 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 ...
set up one of the most famous Italian banks, the
Medici Bank, in 1397. The
Republic of Genoa founded the earliest-known
state deposit bank,
Banco di San Giorgio (Bank of St. George), in 1407 at
Genoa, Italy.
Early modern
Fractional reserve banking
Fractional-reserve banking is the system of banking operating in almost all countries worldwide, under which banks that take deposits from the public are required to hold a proportion of their deposit liabilities in liquid assets as a reserve, ...
and the issue of
banknotes emerged in the 17th and 18th centuries. Merchants started to store their gold with the
goldsmiths of
London, who possessed private
vaults, and who charged a fee for that service. In exchange for each deposit of precious metal, the goldsmiths issued
receipts certifying the quantity and purity of the metal they held as a
bailee
Bailment is a legal relationship in common law, where the owner transfers physical possession of personal property ("chattel") for a time, but retains ownership. The owner who surrenders custody to a property is called the "bailor" and the ind ...
; 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, 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 operating in almost all countries worldwide, under which banks that take deposits from the public are required to hold a proportion of their deposit liabilities in liquid assets as a reserve, ...
. 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
Default may refer to:
Law
* Default (law), the failure to do something required by law
** Default (finance), failure to satisfy the terms of a loan obligation or failure to pay back a loan
** Default judgment, a binding judgment in favor of ei ...
. Thus the goldsmiths of London became the forerunners of banking by creating new money based on credit.
![Pohjoismaiden Osakepankin Helsingin sivukonttori](https://upload.wikimedia.org/wikipedia/commons/6/64/Pohjoismaiden_Osakepankin_Helsingin_sivukonttori.jpg)
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 English Government's banker, and still one of the bankers for the Government of ...
originated the permanent issue of
banknotes in 1695. The
Royal Bank of Scotland
The Royal Bank of Scotland plc (RBS; gd, Banca Rìoghail na h-Alba) is a major retail and commercial bank in Scotland. It is one of the retail banking subsidiaries of NatWest Group, together with NatWest (in England and Wales) and Ulster Bank ...
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. For water resources, it can be groundwater in an aquifer. In these situations the account is s ...
facility in 1728. By the beginning of the 19th century
Lubbock's Bank had established a
bankers' clearing house in London to allow multiple banks to clear transactions. The
Rothschilds
The Rothschild family ( , ) is a wealthy Ashkenazi Jewish family originally from Frankfurt that rose to prominence with Mayer Amschel Rothschild (1744–1812), a court factor to the German Landgraves of Hesse-Kassel in the Free City of F ...
pioneered
international finance on a large scale, financing the purchase of shares in the
Suez canal
The Suez Canal ( arz, قَنَاةُ ٱلسُّوَيْسِ, ') is an artificial sea-level waterway in Egypt, connecting the Mediterranean Sea to the Red Sea through the Isthmus of Suez and dividing Africa and Asia. The long canal is a popular ...
for the British government in 1875.
Etymology
The word'' bank'' was taken into
Middle English from
Middle French ''banque'', from Old
Italian ''banca'', meaning "table", from
Old High German ''banc, bank'' "bench, counter". Benches were used as makeshift desks or exchange counters during the
Renaissance 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, a banker is defined as a person who carries on the business of banking by conducting
current accounts
A transaction account, also called a checking account, chequing account, current account, demand deposit account, or share draft account at credit unions, is a deposit account held at a bank or other financial institution. It is available to the ...
for their customers, paying
cheques drawn on them and also collecting
cheques for their customers.
![Bank](https://upload.wikimedia.org/wikipedia/commons/7/72/Bank.Pokhara.JPG)
In most common law jurisdictions there is a Bills of Exchange Act that codifies the law in relation to
negotiable instruments
A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, whose payer is usually named on the document. More specifically, it is a document contemplated by or consisting of a ...
, including
cheques, 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 cheques 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 cheques 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), 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 cheques drawn by or paid in by customers.
Since the advent of
EFTPOS (Electronic Funds Transfer at Point Of Sale), direct credit,
direct debit and
internet banking, the cheque has lost its primacy in most banking systems as a payment instrument. This has led legal theorists to suggest that the cheque 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 cheques .
Standard business
![WinonaSavingsBankVault](https://upload.wikimedia.org/wikipedia/commons/8/87/WinonaSavingsBankVault.JPG)
Banks act as payment agents by conducting
checking or current accounts for customers, paying
cheques drawn by customers in the bank, and collecting cheques deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as
Automated Clearing House (ACH),
Wire transfers or
telegraphic transfer
Telegraphic Transfer or telex transfer, often abbreviated to TT, is a term used to refer to an electronic means of transferring funds. A transfer charge is often charged by the sending bank and in some cases by the receiving bank.
Historically t ...
,
EFTPOS, and
automated teller machines (ATMs).
Banks borrow money by accepting funds deposited on current accounts, by accepting
term deposits, and by issuing debt securities such as
banknotes 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 and ...
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. Non-banks 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,
investment banking
Investment banking pertains to certain activities of a financial services company or a corporate division that consist in advisory-based financial transactions on behalf of individuals, corporations, and governments. Traditionally associated wit ...
,
private banking,
transaction banking ''Transaction Banking'' (''TB'') can be defined as the set of instruments and services that a bank offers to trading partners to financially support their reciprocal exchanges of goods (e.g.trade), monetary flows (e.g., cash), or commercial papers ( ...
,
insurance,
consumer finance
Personal finance is the financial management which an individual or a family unit performs to budget, save, and spend monetary resources over time, taking into account various financial risks and future life events.
When planning personal fi ...
,
trade finance and other related.
Channels
![SunTrust Bank, Gaithersburg, Maryland, August 25, 2015](https://upload.wikimedia.org/wikipedia/commons/5/50/SunTrust_Bank%2C_Gaithersburg%2C_Maryland%2C_August_25%2C_2015.jpg)
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 cheque deposits via mail and use mail to communicate to their customers
*
Online banking 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 which do not involve cash or Financial instruments (such as cheques), without ...
allows customers to conduct transactions over the telephone with an
automated attendant, or when requested, with a
telephone operator
*
Video banking Video banking is a term used for performing banking transactions or professional banking consultations via a remote video connection. Video banking can be performed via purpose built banking transaction machines (similar to an Automated teller mach ...
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 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 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. 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, 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 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 and financial services industries. It has been in use for many years as lenders try to measure loan risk in terms of interest rates and other fees. The interest rate on a ...
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
Default may refer to:
Law
* Default (law), the failure to do something required by law
** Default (finance), failure to satisfy the terms of a loan obligation or failure to pay back a loan
** Default judgment, a binding judgment in favor of ei ...
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 term '' plastic card'' includes the above and as an identity document. These are similar to a credit card, but u ...
s, prepaid cards,
smart card
A smart card, chip card, or integrated circuit card (ICC or IC card) is a physical electronic authentication device, used to control access to a resource. It is typically a plastic credit card-sized card with an embedded integrated circuit (IC) c ...
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 cardholders, and
transaction fee
A fee is the price one pays as remuneration for rights or services. Fees usually allow for overhead, wages, costs, and markup. Traditionally, professionals in the United Kingdom (and previously the Republic of Ireland) receive a fee in contra ...
s to retailers who accept the bank's credit and/or debit 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, monetisation of data, white-labeling of banking and payment applications, or the cross-selling of complementary products.
Products
Retail
*
Savings account
*
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, a financial product commonly sold by banks, thrift institutions, and credit unions in the United States. CDs differ from savings accounts in that the CD has a specific, fixed term (often one, th ...
(CD)
*
Individual retirement account (IRA)
*
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 term '' plastic card'' includes the above and as an identity document. These are similar to a credit card, but u ...
*
Mortgage
*
Mutual fund
*
Personal loan
*
Time deposits
*
ATM card
*
Current accounts
A transaction account, also called a checking account, chequing account, current account, demand deposit account, or share draft account at credit unions, is a deposit account held at a bank or other financial institution. It is available to the ...
*
Cheque books
*
Automated teller machine (ATM)
*
National Electronic Fund Transfer
National Electronic Funds Transfer (NEFT) is an electronic funds transfer system maintained by the Reserve Bank of India (RBI). Started in November 2005, the setup was established and maintained by Institute for Development and Research in Bankin ...
(NEFT)
*
Real-time gross settlement (RTGS)
Business (or commercial/investment) banking
*
Business loan
*
Capital raising
Capital may refer to:
Common uses
* Capital city, a municipality of primary status
** List of national capitals, List of national capital cities
* Capital letter, an upper-case letter Economics and social sciences
* Capital (economics), the dura ...
(
equity
Equity may refer to:
Finance, accounting and ownership
* Equity (finance), ownership of assets that have liabilities attached to them
** Stock, equity based on original contributions of cash or other value to a business
** Home equity, the dif ...
/
debt /
hybrids)
*
Revolving credit
*
Risk management (
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. It includes all as ...
(FX),
interest rates,
commodities
In economics, a commodity is an economic good, usually a resource, that 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.
The price of a comm ...
,
derivatives
The derivative of a function is the rate of change of the function's output relative to its input value.
Derivative may also refer to:
In mathematics and economics
* Brzozowski derivative in the theory of formal languages
* Formal derivative, an ...
)
*
Term loan {{Unreferenced, date=March 2018
A term loan is a monetary loan that is usually 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 in some cases. A term loan usua ...
*
Cash management services (lock box, remote deposit capture, merchant processing)
*
Credit services
*
Securities Services
A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
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 environme ...
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 may refer to:
Common uses
* Capital city, a municipality of primary status
** List of national capital cities
* Capital letter, an upper-case letter Economics and social sciences
* Capital (economics), the durable produced goods used f ...
a bank is required to hold. Bank capital consists principally of
equity
Equity may refer to:
Finance, accounting and ownership
* Equity (finance), ownership of assets that have liabilities attached to them
** Stock, equity based on original contributions of cash or other value to a business
** Home equity, the dif ...
,
retained earnings and
subordinated debt.
Some of the main risks faced by banks include:
*
Credit risk: 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 so ...
: 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: 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: risk arising from the execution of a company's business functions.
*
Reputational risk: 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 is a
bank regulation, which sets a framework within which a bank or depository institution must manage its
balance sheet. The categorisation of assets and capital is highly standardised so that it can be
risk weighted.
After the
financial crisis of 2007–2008, regulators force banks to issue ''
Contingent convertible bond
A contingent convertible bond (CoCo), also known as an enhanced capital note (ECN) is a fixed-income instrument that is convertible into equity if a pre-specified trigger event occurs. The concept of CoCo has been particularly discussed in the con ...
s'' (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 capitalisation 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 and current accounts subject to
cheque 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 cheque 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 economise 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 financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value ...
/
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 of an economic or monetary region,Such as the Eurozone or ECCAS is increased. In most modern economies, money creation is controlled by the central bank ...
/destruction – whenever a bank gives out a loan in a
fractional-reserve banking system, a new sum of money is created and conversely, whenever the principal on that loan is repaid money is destroyed.
Bank crisis
![Bosakov dom](https://upload.wikimedia.org/wikipedia/commons/e/e3/Bosakov_dom.jpg)
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 so ...
(where many depositors may request withdrawals in excess of available funds),
credit risk (the chance that those who owe money to the bank will not repay it), and
interest rate risk
In finance and economics, interest is payment from a borrower 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 distinc ...
(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 clients withdraw their money from a bank, because they believe the bank may cease to function in the near future. In other words, it is when, in a fractional-reserve banking system (where banks no ...
that occurred during the
Great Depression
The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
, the U.S.
Savings and Loan crisis in the 1980s and early 1990s, the Japanese banking crisis during the 1990s, and the
sub-prime mortgage crisis in the 2000s.
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 recapitalisation. 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 totalled 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:18000+,
BOC:12000+,
CCB:13000+,
ABC
ABC are the first three letters of the Latin script known as the alphabet.
ABC or abc may also refer to:
Arts, entertainment, and media Broadcasting
* American Broadcasting Company, a commercial U.S. TV broadcaster
** Disney–ABC Television ...
: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. Central banks also typically have a monopoly on the business of issuing banknotes. 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 financial regulation, regulation of the financial services industry in the United Kingdom between 2001 and 2013. It was founded as the Securities and Investmen ...
licenses banks, and some commercial banks (such as the Bank of Scotland) 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 English Government's banker, and still one of the bankers for the Government of ...
, 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 cheque drawn by the customer.
*
* The bank agrees to promptly collect the cheques 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 on cheques 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 cheques 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 and/or create new rights, obligations, or limitations relevant to the bank-customer relationship.
Some types of financial institutions, such as building societies and credit unions
A credit union, a type of financial institution similar to a commercial bank, is a member-owned nonprofit financial cooperative. Credit unions generally provide services to members similar to retail banks, including deposit accounts, provision ...
, 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. Banking servi ...
, dealing directly with individuals and small businesses;
* business banking
A commercial bank is a financial institution which accepts deposit (finance), deposits from the public and gives loans for the purposes of consumption and investment to make profit (economics), profit.
It can also refer to a bank, or a division ...
, providing services to mid-market business;
* corporate banking, directed at large business entities;
* private banking, providing wealth management services to high-net-worth individual
High-net-worth individual (HNWI) is a term used by some segments of the financial services industry to designate persons whose investible wealth (assets such as stocks and bonds) exceeds a given amount. Typically, these individuals are defined ...
s and families;
* investment banking
Investment banking pertains to certain activities of a financial services company or a corporate division that consist in advisory-based financial transactions on behalf of individuals, corporations, and governments. Traditionally associated wit ...
, relating to activities on the financial markets.
Most banks are profit-making, private enterprises. However, some are owned by the government, or are non-profit organisations.
Types of banks
* Commercial banks: the term used for a normal bank to distinguish it from an investment bank. After the Great Depression
The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
, 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 t ...
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 w ...
: 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 bank
A land development bank ( bn, ভূমি উন্নয়ন ব্যাংক), abbreviated LDB, is a special kind of bank in India, and is of quasi-commercial type that provides services such as accepting deposits, making business loans, a ...
s: The special banks providing long-term loans are called land development bank
A land development bank ( bn, ভূমি উন্নয়ন ব্যাংক), abbreviated LDB, is a special kind of bank in India, and is of quasi-commercial type that provides services such as accepting deposits, making business loans, a ...
s (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 co-operative banks: not-for-profit cooperatives owned by the depositors and often offering rates more favourable than for-profit banks. Typically, membership is restricted to employees of a particular company, residents of a defined area, members of a certain union or religious organisations, and their immediate families.
* Postal savings banks: savings banks associated with national postal systems.
* Private banks
Private banking is banking, investment and other financial services provided by banks and financial institutions primarily serving high-net-worth individuals (HNWIs)—defined as those with very high levels of income or sizable assets. A bank th ...
: 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 decentralised distribution network, providing local and regional outreach – and by their socially responsible approach to business and society.
* Building societies and Landesbanks: institutions that conduct retail banking.
* Ethical banks: banks that prioritize the transparency of all operations and make only what they consider to be socially responsible investments.
* A direct or internet-only bank is a banking operation without any physical bank branches. Transactions are usually accomplished using ATMs and electronic transfers and direct deposit
A direct deposit (or direct credit), in banking, is a deposit of money by a payer directly into a payee's bank account. Direct deposits are most commonly made by businesses in the payment of salaries and wages and for the payment of suppliers' acco ...
s through an online interface.
Types of investment banks
* Investment banks " underwrite" (guarantee the sale of) stock and bond issues, provide investment management
Investment management is the professional asset management of various securities, including shareholdings, bonds, and other assets, such as real estate, to meet specified investment goals for the benefit of investors. Investors may be institut ...
, and advise 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 t ...
activities such as M&A, trade for their own accounts, make markets, provide securities services
A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
to institutional clients.
* 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 commodi ...
s were traditionally banks which engaged in trade finance. 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
Financial services are the Service (economics), economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, acco ...
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 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. They generally provide liquidity to the banking system and act as the lender of last resort in event of a crisis.
* Islamic bank
Islamic banking, Islamic finance ( ar, مصرفية إسلامية), or Sharia-compliant finance is banking or financing activity that complies with Sharia (Islamic law) and its practical application through the development of Islamic economics ...
s adhere to the concepts of 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) 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 specialised 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
The Federal Financial Institutions Examination Council (FFIEC) is a formal U.S. government interagency body composed of five banking regulators that is "empowered to prescribe uniform principles, standards, and report forms to promote uniformity ...
(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 ageing ownership groups. Across the country, many banks’ management teams and boards of directors are ageing. 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, cheque cashing services, credit card companies, etc.
As a reaction, banks have developed their activities in financial instruments, through financial market operations such as brokerage and have become big players in such activities.
Another major challenge is the ageing 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
Disintermediation is the removal of intermediaries in economics from a supply chain, or "cutting out the middlemen" in connection with a transaction or a series of transactions. Instead of going through traditional distribution channels, which h ...
had to dollars moving from savings accounts and into direct market instruments such as 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 account
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.
...
s – 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 preauthorised 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 accounts (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.
Types of accounts
Bank statement
A bank statement is an official summary of financial transactions occurring within a given period for each bank account held by a person or business with a financial institution. Such statements are prepared by the financial institution, are nu ...
s are accounting records produced by banks under the various accounting standards of the world. Under 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) account 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 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 favourable 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 which failed during 2008 and 2009 in the United States during the global financial crisis 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.
Globalisation in the banking industry
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, 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.
However, despite these reductions in barriers and growth in cross-border activities, the banking industry is nowhere near as globalised 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 globalised 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.
See also
Terms and concepts:
* Anonymous banking
Banking secrecy, alternately known as financial privacy, banking discretion, or bank safety,Guex (2000), p. 240 is a Non-disclosure agreement, conditional agreement between a bank and its clients that all foregoing activities remain Economic secu ...
* Automated teller machine
* Banking
* Banking agent
* Bank regulation
** Banking license
* Bankers' bonuses Bankers' bonuses are traditionally paid or awarded to some workers in the finance industry at the end of the bank's financial year. They are intended to reward employee behavior during that year that has increased the profits of the bank or some re ...
* Cash advance
* Credit Card
* Call report
* Cheque
* Coin
* deposit account
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.
...
* Deposit creation multiplier
Money creation, or money issuance, is the process by which the money supply of a country, or of an economic or monetary region,Such as the Eurozone or ECCAS is increased. In most modern economies, money creation is controlled by the central bank ...
* Electronic funds transfer
* Ethical banking
* Factoring (finance)
* Finance
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...
* Fractional-reserve banking
* Full-reserve banking
* IBAN
* Internet banking
* International Bank Account Number
* Investment banking
Investment banking pertains to certain activities of a financial services company or a corporate division that consist in advisory-based financial transactions on behalf of individuals, corporations, and governments. Traditionally associated wit ...
* Loan
** Pre-qualification
In general, to pre-qualify is about passing or meeting an initial criteria or requirements before getting other opportunities opened up to such a person.
Pre-qualification is a process whereby a loan officer takes information from a borrower and ...
** Pre-approval In lending, pre-approval is the pre-qualification for a loan or mortgage of a certain value range.
For a general loan a lender, via public or proprietary information, feels that a potential borrower is completely credit worthy enough for a certain ...
** Subprime
In finance, subprime lending (also referred to as near-prime, subpar, non-prime, and second-chance lending) is the provision of loans to people in the United States who may have difficulty maintaining the repayment schedule. Historically, subpri ...
* Mobile banking
* Money
* Money laundering
Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdictions ...
* Narrow banking
* 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. For water resources, it can be groundwater in an aquifer. In these situations the account is s ...
* Overdraft protection
* Piggy bank
Piggy bank (sometimes penny bank or money box) is the traditional name of a coin container normally used by children. The piggy bank is known to collectors as a "still bank" as opposed to the "mechanical banks" popular in the early 20th century ...
* Pigmy Deposit Scheme
* Private banking
* Soft probe A soft probe is a confirmation method used by banks to verify funding for a seller from a buyer, conducted by the seller's bank to the buyer's bank. Such a probe is not recorded in the buyer's banking information, and usually nothing but confirmati ...
* Substitute check
A substitute check or cheque, also called an image cash letter (ICL), clearing replacement document (CRD), or image replacement document (IRD), is a negotiable instrument used in electronic banking systems to represent a physical paper cheque (ch ...
* SWIFT
* Tax haven
* Venture capital
* Wealth management
* Wire transfer
Types of institutions:
* Bad bank
A bad bank is a corporate structure which isolates illiquid and high risk assets (typically non-performing loans) held by a bank or a financial organisation, or perhaps a group of banks or financial organisations. A bank may accumulate a large por ...
* Bankers' bank A bankers' bank is a financial institution that provides financial services to community banks in the United States of America. Bankers' banks are owned by investor banks and may provide services only to community banks.
By leveraging positive econ ...
* Building society
* Central bank
* Cooperative bank
Cooperative banking is retail and commercial banking organized on a cooperative basis. Cooperative banking institutions take deposits and lend money in most parts of the world.
Cooperative banking, as discussed here, includes retail banking carr ...
* Credit union
* Ethical bank
* Industrial loan company
An industrial loan company (ILC) or industrial bank is a financial institution in the United States that lends money, and may be owned by non-financial institutions. They provide niche financial services nationwide. ILCs offer FDIC-insured depos ...
* Islamic banking
Islamic banking, Islamic finance ( ar, مصرفية إسلامية), or Sharia-compliant finance is banking or financing activity that complies with Sharia (Islamic law) and its practical application through the development of Islamic economic ...
* Mortgage bank
* Mutual savings bank
* National bank
* Offshore bank
* Person-to-person lending
* Public bank
* Savings and loan association
* Savings bank
* Sparebank
Sparebank is a Norwegian savings bank without external owners. The Norwegian sparebanks are a separate type of juridical entity that differ from commercial banks. There are a total of 123 savings banks in Norway.
History
The first savings bank ...
* Zombie bank
A zombie bank is a financial institution that has an economic net worth less than zero but continues to operate because its ability to repay its debts is shored up by implicit or explicit government credit support. The term was first used by Edw ...
Crime:
* Bank fraud
Bank fraud is the use of potentially illegal means to obtain money, assets, or other property owned or held by a financial institution, or to obtain money from depositors by fraudulently posing as a bank or other financial institution. In many ins ...
* Bank robbery
* Cheque fraud
* Cyber Crime
* Mortgage fraud
* Usury
Related lists:
* List of largest banks
The following are lists of the largest banks in the world, as measured by total assets.
By total assets
The list is based on the April 2022 S&P Global Market Intelligence report of the 100 largest banks in the world. The ranking was based upon a ...
* List of accounting topics
* List of bank mergers in United States
* 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
This is a list of major stock exchanges. Those futures exchanges that also offer trading in securities besides trading in futures contracts are listed both here and in the list of futures exchanges.
There are sixteen stock exchanges in the world ...
Banking by country
* Banking in Australia
* Banking in Austria
This article is intended to give an overview of banking in Austria.
Banking system Regulations
Since the introduction of the Kreditwesensgesetz (KWG) in 1979, the boundaries between the various types of credit institutions have gradually become ...
* Banking in Bangladesh
Bangladesh is a developing country with an impoverished banking system, particularly in terms of the services and customer care provided by the government run banks. In recent times, private banks are trying to imitate the banking structure of t ...
* Banking in Belgium
* Banking in Canada
* Banking in China
* Banking in France
* Banking in Germany
* Banking in Greece
Banking in Greece made up the relative majority of assets and liabilities of Greece as of 2008.
On 29 June 2015 banks were shut down and capital controls were imposed. As of October 2018, the capital controls were brought to an end.
Greek banks ar ...
* Banking in Hong Kong
The economy of Hong Kong is a highly developed free-market economy. It is characterised by low taxation, almost free port trade and a well-established international financial market. Its currency, called the Hong Kong dollar, is legally issue ...
* Banking in Iran
* Banking in India
* Banking in Israel
Banking in Israel has its roots in the Zionist movement at the beginning of the 20th century prior to the establishment of the State of Israel in 1948.
History
The World Zionist Organization established the Anglo-Palestine Bank in 1903 (which lat ...
* Banking in Italy
* Banking in Japan
The main elements of Japan's financial system are much the same as those of other major industrialized nations: a commercial banking system, which accepts deposits, extends loans to businesses, and deals in foreign exchange; specialized governme ...
* Banking in Pakistan
Banking in Pakistan formally began during the period of colonialism in South Asia, during which much of Pakistan was controlled by the British Empire. In 1947, Pakistan gained independence from the British Raj. After independence, the State Bank of ...
* Banking in Qatar
The economy of Qatar is one of the highest in the world based on GDP per capita, ranking generally among the top ten richest countries on world rankings for 2015 and 2016 data compiled by the World Bank, the United Nations, and the Internationa ...
* Banking in Russia
Banking in Russia is subject to significant regulations as banks in the Russian Federation have to meet mandatory Russian legislation requirements, and comply with numerous Bank of Russia instructions and regulations.
History
Soviet period
Unti ...
* Banking in Spain
The economy of Spain is a highly developed social market economy. It is the world's sixteenth-largest by nominal GDP and the sixth-largest in Europe. Spain is a member of the European Union and the eurozone, as well as the Organization for Eco ...
* Banking in Singapore
The economy of Singapore is a highly developed free-market economy with dirigiste characteristics. Singapore's economy has been previously ranked as the most open in the world, the joint 4th-least corrupt, and the most pro-business. Singapor ...
* Banking in Switzerland
* Banking in Tunisia Banking in Tunisia is a service industry comprising 23 domestic banks of which, are three state owned banks.
History
Tunisia was among the first to introduce financial reforms in the Middle East and North Africa (MENA) region. The financial secto ...
* Banking in Turkey
* Banking in the United Kingdom
* Banking in the United States
Banking in the United States began by the 1780s along with the country's founding and has developed into highly influential and complex system of banking and financial services. Anchored by New York City and Wall Street, it is centered on vario ...
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
from ''UCB Libraries GovPubs''
*
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.
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Legal entities
Italian inventions
Economic history of Italy