Bank
From ArticleWorld
A bank is a business that provides financial services, most commonly taking deposits and extending credit. Banks have influenced politics and economies for centuries.
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Typical services
Services offered by a bank may vary according to the type of bank, and its location. Basic services usually provided include:
- Taking deposits and issuing checking and savings accounts
- Extending credit to individuals and businesses
- Facilitating money transactions like wire transfers and cashiers checks
- Issuing credit, ATM, and debit cards
- Storing valuables, usually in a safe deposit box
Retail banks
- Commercial bank, is the term used for a normal bank to differentiate it from an investment bank.
- Community development banks are regulated banks that provide financial services, and credit, to underserved markets.
- Postal savings banks are savings banks associated with nations postal system.
- Private banks manage the assets of high net worth individuals.
- Offshore banks are banks located in jurisdictions with low taxation and regulation.
- Savings banks traditionally accepted savings deposits and issued mortgages. Today, some countries have broadened the permitted activities of savings banks.
Investment banks
- Investment banks underwrite, or guarantee the sale of, stock and bond issues. They also advise businesses regarding mergers.
- Merchant banks provide capital to firms, in the form of shares, rather than loans.
Islamic banks
Islamic banks adhere to the concepts of Islamic law. This type of banking revolves around several concepts based on Islamic canons. Since the concept of interest is forbidden in Islam, all banking activities must avoid charging, or paying, interest. Instead, the Bank earns profit and fees on financing services that it extends to its customers.
Regulation
One of the reasons banks are so highly regulated, is that no government can afford to have the banking system fail. There is almost always a lender of last resort in place, in the event of a crisis where short term obligations exceed short term assets. At this point, the government would step in and lend banks enough money to avoid bankruptcy. As well as being relatively unstable, banks are crucial to the economy. This is the other reason for strict regulations. Among others, there are requirements in place about how much capital a bank must hold, and requirements regarding deposit insurance.