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A bank is a financial institution that accepts deposits from the public and creates credit.Lending activities can be performed either directly or indirectly through capital markets. Due to their importance in the financial stability of a country, banks are highly regulated in most countries. Most nations have institutionalized a system known as fractional reserve banking 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, known as the Basel Accords.
Financial institutions, otherwise known as banking institutions, are corporations that provide services as intermediaries of financial markets. Broadly speaking, there are three major types of financial institutions:
A deposit account is a savings account, current account or any other type of bank account that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the bank and represents the amount owed by the bank to the customer. Some banks may charge a fee for this service, while others may pay the customer interest on the funds deposited.
Demand deposits, bank money or scriptural money are funds held in demand deposit accounts in commercial banks. These account balances are usually considered money and form the greater part of the narrowly defined money supply of a country. Simply put, these would be funds like those held in a checking account.
Banking in its modern sense evolved in the 14th century in the prosperous cities of Renaissance Italy but in many ways was 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 Fuggers, the Welsers, the Berenbergs, and the Rothschilds – have played a central role over many centuries. The oldest existing retail bank is Banca Monte dei Paschi di Siena, while the oldest existing merchant bank is Berenberg Bank.
The history of banking began with the first prototype banks which were the merchants of the world, who made grain loans to farmers and traders who carried goods between cities. This was around 2000 BC in Assyria, India and Sumeria. Later, in ancient Greece and during the Roman Empire, lenders based in temples made loans, while accepting deposits and performing the change of money. Archaeology from this period in ancient China and India also shows evidence of money lending.
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 Mugello region of Tuscany, and prospered gradually until it was able to fund the Medici Bank. This bank was the largest in Europe during the 15th century, and it facilitated the Medicis' rise to political power in Florence, although they officially remained citizens rather than monarchs until the 16th century.
Fugger is a German 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 venture capitalists. Alongside the Welser family, the Fugger family controlled much of the European economy in the sixteenth century and accumulated enormous wealth. The Fuggers held a near monopoly on the European copper market.
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The concept of banking may have begun in ancient [] and Babylonia and Old sangvi, with merchants offering loans of grain as collateral 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 ancient China and India also shows evidence of money lending.
Babylonia was an ancient Akkadian-speaking state and cultural area based in central-southern Mesopotamia. A small Amorite-ruled state emerged in 1894 BC, which contained the minor administrative town of Babylon. It was merely a small provincial town during the Akkadian Empire but greatly expanded during the reign of Hammurabi in the first half of the 18th century BC and became a major capital city. During the reign of Hammurabi and afterwards, Babylonia was called "the country of Akkad", a deliberate archaism in reference to the previous glory of the Akkadian Empire.
Ancient Greece was a civilization belonging to a period of Greek history from the Greek Dark Ages of the 12th–9th centuries BC to the end of antiquity. Immediately following this period was the beginning of the Early Middle Ages and the Byzantine era. Roughly three centuries after the Late Bronze Age collapse of Mycenaean Greece, Greek urban poleis began to form in the 8th century BC, ushering in the Archaic period and colonization of the Mediterranean Basin. This was followed by the period of Classical Greece, an era that began with the Greco-Persian Wars, lasting from the 5th to 4th centuries BC. Due to the conquests by Alexander the Great of Macedon, Hellenistic civilization flourished from Central Asia to the western end of the Mediterranean Sea. The Hellenistic period came to an end with the conquests and annexations of the eastern Mediterranean world by the Roman Republic, which established the Roman province of Macedonia in Roman Greece, and later the province of Achaea during the Roman Empire.
The Roman Empire was the post-Roman Republic period of the ancient Roman civilization. Ruled by emperors, it had large territorial holdings around the Mediterranean Sea in Europe, North Africa, the Middle East, and the Caucasus. From the constitutional reforms of Augustus to the military anarchy of the third century, the Empire was a principate ruled from Italy, homeland of the Romans and metropole of the empire, with the city of Rome as capital. The Roman Empire was then ruled by multiple emperors and divided in a Western Roman Empire, based in Milan and later Ravenna, and an Eastern Roman Empire, based in Nicomedia and later Constantinople. Rome remained the nominal capital of both parts until 476 AD, when Odoacer deposed Romulus Augustus after capturing Ravenna and the Senate of Rome sent the imperial regalia to Constantinople. The fall of the Western Roman Empire to barbarian kings, along with the hellenization of the Eastern Roman Empire into the Byzantine Empire, is conventionally used to mark the end of Ancient Rome and the beginning of the Middle Ages.
More modern banking can be traced to medieval and early Renaissance Italy, to the rich cities in the centre and north like Florence, Lucca, Siena, Venice and Genoa. The Bardi and Peruzzi families dominated banking in 14th-century Florence, establishing branches in many other parts of Europe.One of the most famous Italian banks was the Medici Bank, set up by Giovanni di Bicci de' Medici in 1397. The earliest known state deposit bank, Banco di San Giorgio (Bank of St. George), was founded in 1407 at Genoa, Italy.
The Renaissance is a period in European history, covering the span between the 14th and 17th centuries and marking the transition from the Middle Ages to modernity. The traditional view focuses more on the early modern aspects of the Renaissance and argues that it was a break from the past, but many historians today focus more on its medieval aspects and argue that it was an extension of the middle ages.
Italy, officially the Italian Republic, is a European country consisting of a peninsula delimited by the Italian Alps and surrounded by several islands. Located in the middle of the Mediterranean sea and traversed along its length by the Apennines, Italy has a largely temperate seasonal climate. The country covers an area of 301,340 km2 (116,350 sq mi) and shares open land borders with France, Slovenia, Austria, Switzerland and the enclaved microstates of Vatican City and San Marino. Italy has a territorial exclave in Switzerland (Campione) and a maritime exclave in the Tunisian sea (Lampedusa). With around 60 million inhabitants, Italy is the fourth-most populous member state of the European Union.
Florence is the capital city of the Italian region of Tuscany. It is the most populous city in Tuscany, with 383,084 inhabitants in 2013, and over 1,520,000 in its metropolitan area.
Modern banking practices, including fractional reserve banking 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 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; these receipts could not be assigned, only the original depositor could collect the stored goods.
A banknote is a type of negotiable promissory note, made by a bank, payable to the bearer on demand. Banknotes were originally issued by commercial banks, which were legally required to redeem the notes for legal tender when presented to the chief cashier of the originating bank. These commercial banknotes only traded at face value in the market served by the issuing bank. Commercial banknotes have primarily been replaced by national banknotes issued by central banks.
A goldsmith is a metalworker who specializes in working with gold and other precious metals. Historically, goldsmiths also have made silverware, platters, goblets, decorative and serviceable utensils, ceremonial or religious items, and rarely using Kintsugi, but the rising prices of precious metals have curtailed the making of such items to a large degree.
London is the capital and largest city of both England and the United Kingdom. Standing on the River Thames in the south-east of England, at the head of its 50-mile (80 km) estuary leading to the North Sea, London has been a major settlement for two millennia. Londinium was founded by the Romans. The City of London, London's ancient core − an area of just 1.12 square miles (2.9 km2) and colloquially known as the Square Mile − retains boundaries that follow closely its medieval limits. The City of Westminster is also an Inner London borough holding city status. Greater London is governed by the Mayor of London and the London Assembly.
Gradually the goldsmiths began to lend the money out on behalf of the depositor, which led to the development of modern banking practices; promissory notes (which evolved into banknotes) were issued for money deposited as a loan to the goldsmith.The goldsmith paid interest on these 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. 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. Thus, the goldsmiths of London became the forerunners of banking by creating new money based on credit.
A deposit is the act of placing cash with some entity, most commonly with a financial institution such as a bank.
A promissory note, sometimes referred to as a note payable, is a legal instrument, in which one party promises in writing to pay a determinate sum of money to the other, either at a fixed or determinable future time or on demand of the payee, under specific terms.
In finance, default is failure to meet the legal obligations of a loan, for example when a home buyer fails to make a mortgage payment, or when a corporation or government fails to pay a bond which has reached maturity. A national or sovereign default is the failure or refusal of a government to repay its national debt.
The Bank of England was the first to begin the permanent issue of banknotes, in 1695.The Royal Bank of Scotland established the first overdraft facility in 1728. By the beginning of the 19th century a bankers' clearing house was established in London to allow multiple banks to clear transactions. The Rothschilds pioneered international finance on a large scale, financing the purchase of the Suez canal for the British government.
The word bank was taken Middle English from Middle French banque, from Old Italian banco, meaning "table", from Old High German banc, bank "bench, counter". Benches were used as makeshift desks or exchange counters during the Renaissance by JewishFlorentine bankers, who used to make their transactions atop desks covered by green tablecloths.
The definition of a bank varies from country to country. See the relevant country pages under 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 for his customers, paying cheques drawn on him/her and also collecting cheques for his/her customers.
In most common law jurisdictions there is a Bills of Exchange Act that codifies the law in relation to negotiable instruments, 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 English 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:
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 .
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, 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 loans, 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 can create new money when they make a loan. New loans throughout the banking system generate new deposits elsewhere in the system. The money supply is usually increased by the act of lending, and reduced when loans are repaid faster than new ones are generated. In the United Kingdom between 1997 and 2007, there was an increase in the money supply, largely caused by much more bank lending, which served to push up property prices and increase private debt. The amount of money in the economy as measured by M4 in the UK went from £750 billion to £1700 billion between 1997 and 2007, much of the increase caused by bank lending.If all the banks increase their lending together, then they can expect new deposits to return to them and the amount of money in the economy will increase. Excessive or risky lending can cause borrowers to default, the banks then become more cautious, so there is less lending and therefore less money so that the economy can go from boom to bust as happened in the UK and many other Western economies after 2007.
Activities undertaken by banks include personal banking, corporate banking, investment banking, private banking, transaction banking, insurance, consumer finance, foreign exchange trading, commodity trading, trading in equities, futures and options trading and money market trading.
Banks offer many different channels to access their banking and other services:
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.
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, monetization of data, white-labelling of banking and payment applications, or the cross-selling of complementory products.
Banks face a number of risks 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 a bank is required to hold. Bank capital consists principally of equity, retained earnings and subordinated debt.
After the 2007-2009 financial crisis, regulators force banks to issue Contingent convertible bonds (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 capitalization gets a boost. Owing to their capacity to absorb losses, CoCos have the potential to satisfy regulatory capital requirement.
Some of the main risks faced by banks include:
The capital requirement is a bank regulation, which sets a framework within which a bank or depository institution must manage its balance sheet. The categorization of assets and capital is highly standardized so that it can be risk weighted.
The economic functions of banks include:
Banks are susceptible to many forms of risk which have triggered occasional systemic crises.These include liquidity risk (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 (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 a banking sector as a whole. Prominent examples include the bank run that occurred during the Great Depression, 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.
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 recapitalization. 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 banking totalled US$66.3 billion in 2009, up 12% on the previous year.
The United States has the most banks in the world in terms of institutions (5,330 as of 2015) and possibly branches (81,607 as of 2015). – more than double the 15,000 branches in the UK.This is an indicator of the geography and regulatory structure of the US, resulting in a large number of small to medium-sized institutions in its banking system. As of November 2009, China's top 4 banks have in excess of 67,000 branches (ICBC:18000+, BOC:12000+, CCB:13000+, ABC:24000+) with an additional 140 smaller banks with an undetermined number of branches. Japan had 129 banks and 12,000 branches. In 2004, Germany, France, and Italy each had more than 30,000 branches
Between 1985 and 2018 banks engaged in around 28,798 mergers or acquisitions, either as the acquirer or the target company. The overall known value of these deals cumulates to around 5,169 bil. USD.In terms of value, there have been two major waves (1999 and 2007) which both peaked at around 460 bil. USD followed by a steep decline (-82% from 2007 until 2018).
Here is a list of the largest deals in history in terms of value with participation from at least one bank:
|Date Announced||Acquiror Name||Acquiror Mid Industry||Acquiror Nation||Target Name||Target Mid Industry||Target Nation||Value of Transaction ($mil)|
|04/25/2007||RFS Holdings BV||Other Financials||Netherlands||ABN-AMRO Holding NV||Banks||Netherlands||98,189.19|
|04/06/1998||Travelers Group Inc||Insurance||United States||Citicorp||Banks||United States||72,558.18|
|09/29/2014||UBS AG||Banks||Switzerland||UBS AG||Banks||Switzerland||65,891.51|
|04/13/1998||NationsBank Corp, Charlotte, NC||Banks||United States||BankAmerica Corp||Banks||United States||61,633.40|
|01/14/2004||JPMorgan Chase & Co||Banks||United States||Bank One Corp, Chicago, IL||Banks||United States||58,663.15|
|10/27/2003||Bank of America Corp||Banks||United States||FleetBoston Financial Corp, MA||Banks||United States||49,260.63|
|09/14/2008||Bank of America Corp||Banks||United States||Merrill Lynch & Co Inc||Brokerage||United States||48,766.15|
|10/13/1999||Sumitomo Bank Ltd||Banks||Japan||Sakura Bank Ltd||Banks||Japan||45,494.36|
|02/26/2009||HM Treasury||National Agency||United Kingdom||Royal Bank of Scotland Group||Banks||United Kingdom||41,878.65|
|02/18/2005||Mitsubishi Tokyo Financial Grp||Banks||Japan||UFJ Holdings Inc||Banks||Japan||41,431.03|
Currently, commercial banks are regulated in most jurisdictions by government entities and require a special bank license to operate.
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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 a 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 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 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:
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 institution, such as building societies and credit unions, 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:
Banks' activities can be divided into:
Most banks are profit-making, private enterprises. However, some are owned by government, or are non-profit organizations.
Structure of the organised banking sector in India. Numbers of banks are in brackets.
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The United States banking industry is one of the most heavily regulated and guarded in the world, – the OCC.with multiple specialized 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
Each regulatory agency has their own set of rules and regulations to which banks and thrifts must adhere. The Federal Financial Institutions Examination Council (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 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 board of directors are ageing. Banks also face ongoing pressure by 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 to new applications. Fixing bugs and creating interfaces costs huge sums, as knowledgeable programmers become scarce.
To be able to provide home buyers and builders with the funds needed, banks must compete for deposits. The phenomenon of disintermediation 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:
Bank statements 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.
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 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 this purposes.
In modern time there has 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 globalized 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 globalized is that it is more convenient to have local banks provide loans to small business 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.
Types of institutions:
Terms and concepts:
Terms and concepts:
Banking by country
Financial capital is any economic resource measured in terms of money used by entrepreneurs and businesses to buy what they need to make their products or to provide their services to the sector of the economy upon which their operation is based, i.e. retail, corporate, investment banking, etc.
In economics, the money supply is the total value of monetary assets available in an economy at a specific time. There are several ways to define "money", but standard measures usually include currency in circulation and demand deposits.
A commercial bank is a type of bank that provides services such as accepting deposits, making business loans, and offering basic investment products that is operated as a business for profit.
A bank account is a financial account maintained by a bank for a customer. A bank account can be a deposit account, a credit card account, a current account, or any other type of account offered by a financial institution, and represents the funds that a customer has entrusted to the financial institution and from which the customer can make withdrawals. Alternatively, accounts may be loan accounts in which case the customer owes money to the financial institution.
In double entry bookkeeping, debits and credits are entries made in account ledgers to record changes in value resulting from business transactions. Generally speaking, if cash is spent in a business transaction, the cash account is credited, and conversely, when cash is obtained in a business transaction, it is described as a debit. Debits and Credits can occur in any account. For simplicity it is often best to view Debits as positive numbers and Credits as negative numbers. When all the debits and credits that are transacted in each account are added up the resulting account total could be a net Debit or a net Credit. If the total of the account is in a net Debit position (positive), it is generally classified in the Asset section of the balance sheet, whereas accounts that total to a net Credit (negative) are shown in the liability section of the balance sheet. Accounts that relate to the company's profit are totaled to yield company earnings and are classified in the Equity section of the balance sheet. When recording incoming cash (revenue) a Debit will be made to Cash or equivalent Assets and a Credit will be made on the revenue account in the income statement. If a company has a positive Net Income, the Retained Earnings will receive a Credit when closing out the Income Statement for the year, while a Net Loss will result in a Debit to the Retained Earnings. A net Credit (negative) balance in Retained Earnings in the Equity Section demonstrates that the company has been profitable over time, whereas a Debit (positive) balance in the Equity section, would demonstrate that the company has been unprofitable. In most companies the following accounts end-up in Credit positions: accounts payable, share capital, loans payable; while Debit accounts typically include Equipment, Inventory, Accounts Receivable. Debits must equal Credits (negatives) in each transaction; individual transactions may require multiple debit and credit entries.
A credit risk is the risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased collection costs. The loss may be complete or partial. In an efficient market, higher levels of credit risk will be associated with higher borrowing costs. Because of this, measures of borrowing costs such as yield spreads can be used to infer credit risk levels based on assessments by market participants.
Fractional-reserve banking is the common practice by commercial banks of accepting deposits, and creating credit, while holding reserves at least equal to a fraction of the bank's deposit liabilities. Reserves are held as currency in the bank, or as balances in the bank's accounts at the central bank. Fractional-reserve banking is the current form of banking practiced in most countries worldwide.
Financial services are the 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, accountancy companies, consumer-finance companies, stock brokerages, investment funds, individual managers and some government-sponsored enterprises. Financial services companies are present in all economically developed geographic locations and tend to cluster in local, national, regional and international financial centers such as London, New York City, and Tokyo.
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 account owner "on demand" and is available for frequent and immediate access by the account owner or to others as the account owner may direct. Access may be in a variety of ways, such as cash withdrawals, use of debit cards, cheques (checks) and electronic transfer. In economic terms, the funds held in a transaction account are regarded as liquid funds. In accounting terms they are considered as cash.
A savings and loan association (S&L), or thrift institution, is a financial institution that specializes in accepting savings, deposits, and making mortgage and other loans. The terms "S&L" or "thrift" are mainly used in the United States; similar institutions in the United Kingdom, Ireland and some Commonwealth countries include building societies and trustee savings banks. They are often mutually held, meaning that the depositors and borrowers are members with voting rights, and have the ability to direct the financial and managerial goals of the organization like the members of a credit union or the policyholders of a mutual insurance company. While it is possible for an S&L to be a joint-stock company, and even publicly traded; in such instances it is no longer truly a mutual association, and depositors and borrowers no longer have membership rights and managerial control. By law, thrifts can have no more than 20 percent of their lending in commercial loans — their focus on mortgage and consumer loans makes them particularly vulnerable to housing downturns such as the deep one the U.S. experienced in 2007.
The savings and loan crisis of the 1980s and 1990s was the failure of 1,043 out of the 3,234 savings and loan associations in the United States from 1986 to 1995: the Federal Savings and Loan Insurance Corporation (FSLIC) closed or otherwise resolved 296 institutions from 1986 to 1989 and the Resolution Trust Corporation (RTC) closed or otherwise resolved 747 institutions from 1989 to 1995.
The Australian financial system consists of the arrangements covering the borrowing and lending of funds and the transfer of ownership of financial claims in Australia, comprising:
A cheque, or check, is a document that orders a bank to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The person writing the cheque, known as the drawer, has a transaction banking account where their money is held. The drawer writes the various details including the monetary amount, date, and a payee on the cheque, and signs it, ordering their bank, known as the drawee, to pay that person or company the amount of money stated.
Alterna Bank is a full-service bank in Canada concentrating on digital offerings. It is a wholly owned subsidiary of Alterna Savings, an Ontario credit union. The bank offers chequing and high-interest savings accounts and mortgages.
An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn". If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft limit, then interest is normally charged at the agreed rate. If the negative balance exceeds the agreed terms, then additional fees may be charged and higher interest rates may apply.
Retail banking, also known as consumer 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 services which are regarded as retail include provision of savings and transactional accounts, mortgages, personal loans, debit cards, and credit cards. Retail banking is also distinguished from investment banking or commercial banking. It may also refer to a division or department of a bank which deals with individual customers.
The Bank of St Helena is a government-owned bank based on the British overseas territory of Saint Helena. It also operates a branch in the dependent territory of Ascension Island. The Government of St. Helena owns 100% of the bank and operates it as a parastatal. The Governor appoints the board of Directors. The bank has a deposits of around SHP 72.7 million. Lending accounts for SHP 13.5 million, and SHP 56.8.5 million is invested.( 2016-17 Annual Report.)
A non-banking financial institution (NBFI) or non-bank financial company (NBFC) is a financial institution that does not have a full banking license or is not supervised by a national or international banking regulatory agency. NBFI facilitate bank-related financial services, such as investment, risk pooling, contractual savings, and market brokering. Examples of these include insurance firms, pawn shops, cashier's check issuers, check cashing locations, payday lending, currency exchanges, and microloan organizations. Alan Greenspan has identified the role of NBFIs in strengthening an economy, as they provide "multiple alternatives to transform an economy's savings into capital investment which act as backup facilities should the primary form of intermediation fail."
Bank regulation in the United States is highly fragmented compared with other G10 countries, where most countries have only one bank regulator. In the U.S., banking is regulated at both the federal and state level. Depending on the type of charter a banking organization has and on its organizational structure, it may be subject to numerous federal and state banking regulations. Apart from the bank regulatory agencies the U.S. maintains separate securities, commodities, and insurance regulatory agencies at the federal and state level, unlike Japan and the United Kingdom. Bank examiners are generally employed to supervise banks and to ensure compliance with regulations.
The first state deposit bank was the Bank of St. George in Genoa, which was established in 1407.
Credit risk is most simply defined as the potential that a bank borrower or counterparty will fail to meet its obligations in accordance with agreed terms.