Why Are Banks Special

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What is a Bank

A bank is a financial institution that is permitted to accept deposits and make loans. Banks can also offer financial services like wealth management, currency exchange, and safe deposit boxes. Banks are classified into three types: retail banks, commercial or corporate banks, and investment banks. Banks are regulated by the national government or central bank in the majority of countries. Click here to know about Agricultural Income.

Types Of Banks

Retail Banks

Retail banks serve only retail customers, though some global financial services firms have both retail and commercial banking divisions. These banks, also known as personal or general banking institutions, provide services to the general public.

 

Checking and savings accounts, loan and mortgage services, automobile financing, and short-term loans such as overdraft protection are all offered by retail banks.

 

Larger Retail Banks

Many larger retail banks may also provide credit card and foreign currency exchange services to their customers. Larger retail banks frequently provide specialty services such as private banking and wealth management to high-net-worth individuals.

 

Corporate Banks

Commercial or corporate banks offer specialised services to their business clients, which range from small business owners to large corporations. These banks offer their clients credit services, cash management, commercial real estate services, employer services, and trade finance in addition to day-to-day business banking.

 

Investment Banks

Investment banks specialise in providing complex services and financial transactions to corporate clients, such as underwriting and assisting with merger and acquisition (M&A) activity.

 

As a result, they are primarily known as financial intermediaries in the majority of these transactions. Large corporations, other financial institutions, pension funds, governments, and hedge funds are common clients.

 

Central Banks

Central banks, unlike the banks mentioned above, are not market-based and do not deal directly with the general public. They are instead primarily in charge of currency stability, controlling inflation and monetary policy, and overseeing a country’s money supply. They also govern member banks’ capital and reserve requirements.

 

 

Importance of Banks

● Banks are vital to the economy because they provide essential services to both consumers and businesses

● They provide you with a secure location to store your cash as a financial services provider

● You can conduct routine banking transactions such as deposits, withdrawals, check writing, and bill payments using a variety of account types such as checking and savings accounts and certificates of deposit (CDs).

● You can also invest your money and earn interest on it

● Banks also provide credit to individuals and businesses. The money you deposit at the bank—short-term cash—is lent to others for long-term debt, such as car loans, credit cards, mortgages, and other debt vehicles. This process contributes to market liquidity, which generates money and maintains supply

● A bank’s goal, like any other business, is to make a profit for its owners. The majority of banks’ owners are their shareholders. Banks accomplish this by charging borrowers higher interest rates on loans and other debt than they do on savings accounts. For example, a bank that pays 1% interest on savings accounts while charging 6% interest on loans earns a 5% gross profit for its owners.

 

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