Types of Banks

3 Key excerpts on "Types of Banks"

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  eBook - ePub

  101 Things Everyone Should Know About Economics

  From Securities and Derivatives to Interest Rates and Hedge Funds, the Basics of Economics and What They Mean for You

  • Peter Sander(Author)
  • 2013(Publication Date)
  • Adams Media

    (Publisher)

  CHAPTER 4 Banks and Central Banking We have discussed the economy and money; the next logical thing to talk about is banks and the banking system. As grain elevators distribute grain and lumberyards distribute lumber, banks distribute money. They store your spare money and allocate it as capital to others (hopefully) who need it for a good economic reason. Banks are part of a banking system and, for better or for worse, are interconnected. They are also moderated by a central banking authority, which in the United States is the Federal Reserve. This chapter describes the different kinds of banks, the banking system, the Federal Reserve, and some of the ways we measure bank strength and success. 27. COMMERCIAL BANK For the most part, when you think of “bank,” you’re thinking of a commercial bank. A commercial bank serves the public—ordinary consumers and “main street” businesses—with an assortment of accounts, savings, checking, and loan services. What You Should Know A commercial bank gets funds from customer deposits, including checking and savings accounts, certificates of deposits (CDs), and other time deposits. It may also get funds by selling securities, especially government bonds back to the government, or by short-term borrowings from government or private investors. In turn, it earns income by lending those funds to businesses needing operating capital, and to consumers for a variety of purposes. While they lend funds for businesses to use, commercial banks are distinguished from investment banks (see #28 Investment Bank) because they do not buy or sell securities for their own part or on behalf of individuals or corporate clients. In fact, huge bank losses on investments prior to the Great Depression led to the failure of many banks (some 20 percent of all banks failed), which then led to legislation, specifically the Glass-Steagall Act of 1933, prohibiting commercial banks from engaging in investment banking activities

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  eBook - ePub

  Foundations of Financial Risk

  An Overview of Financial Risk and Risk-based Financial Regulation

  • Richard Apostolik, Christopher Donohue(Authors)
  • 2015(Publication Date)
  • Wiley

    (Publisher)

  exchange rate, and price risks. Banks have developed sophisticated skills and complicated tools to manage these complex risks. For a fee, banks now offer the same risk management skills and tools to their customers.

  1.2 Different Bank Types

  This section illustrates different Types of Banks by focusing on the types of customers served and the range of services offered. Variations of the Types of Banks described here exist in different parts of the world.

  1.2.1 Retail Banks

  Retail banks' primary customers are individuals, or “consumers.” Many retail banks also offer services to small and medium enterprises (SMEs). Retail banks may have different specializations:

  • Retail and consumer banks, savings and loans companies (thrifts, building societies), cooperatives, and credit unions. These offer loans primarily to individuals to finance house, car, or other purchases (e.g., Woodlands Bank in the United States, TSB Bank in the United Kingdom, or OTP Bank in Hungary). The particular features of cooperatives and credit unions are addressed below.
  • Private banking firms. These provide wealth management services, including tax and investment advice, typically to rich individuals (e.g., Coutts & Co. in the United Kingdom and Bank Julius Baer in Switzerland).
  • Postal banks. These offer banking services to customers in post offices. This structure, where the postal service owns or collaborates with a bank, is widely used throughout the world (e.g., Postbank A.G. in Ger­many, Japan Post Bank in Japan).

  Although retail banks can come in many forms, most have a network of local branches that enable them to focus on retail consumers in one specific geographic area such as a city or a region of a country. However, there are a number of very large retail banks that have extensive branch networks that cover entire countries or portions of countries (e.g., HSBC and Industrial and Commercial Bank of China) and link to retail branches in networks owned through their affiliated entities in other parts of the world (e.g., Citi­group and Santander).

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  eBook - ePub

  Financial Geography

  • Risto Laulajainen(Author)
  • 2005(Publication Date)
  • Routledge

    (Publisher)

  5 Banking

  Many types of bank

  Definitions

  Banks are the intermediaries and participants in most financial transactions. They organize the financial space by developing new products, markets, trading forums and rule sets. These aspects are largely unknown to the small investor. S/he knows the bank as an office on a street corner or in a shopping mall, a place to deposit and retrieve money, make payments and occasionally ask for a loan. This image contains many key ingredients but is too narrow for professional use. Regulators, in particular, who must monitor and supervise the activity are keen on a comprehensive view from which to carve out their own domain. Our discussion benefits from a similar vision, and some historical background helps us to understand the current situation and future trends.

  A widely accepted definition is based on borrowing and lending: the bank is a financial intermediary which accepts deposits and makes loans. Both activities must be included. But financial intermediaries offer many other services, and the question is whether any of these others, without borrowing and lending, would suffice to make an organization a bank. Germans have taken an extreme stand and also accept bill discounting, security brokerage, custodial services, fund management, factoring, provision of financial guarantees and fund transfer as bank criteria. The EU has adopted the German list of banking activities and excluded only insurance broking ( Johnston Pozdena and Alexander 1992: 556; Szegö and Szegö 1992: 330). Definitional variety makes international comparisons vague. A good example was Salomon Brothers (currently Schroeder Salomon Smith Barney), the US investment bank (or broker), which was a bank in Frankfurt but not in London. Much of the apparent variety is froth, however, hiding comparatively few basic types which appear everywhere although under different names. These types are characterized either by the products they offer, or by the customers they serve, or by both.

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