Economics
Types of Banks
Banks can be categorized into different types based on their functions and operations. Commercial banks are the most common, offering a wide range of services to individuals and businesses. Investment banks focus on providing financial services to corporations and governments, such as underwriting securities and facilitating mergers and acquisitions. Central banks, on the other hand, are responsible for regulating the country's monetary policy and issuing currency.
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4 Key excerpts on "Types of Banks"
eBook - PDF- S. Janssen(Author)
- 2009(Publication Date)
- Palgrave Macmillan(Publisher)
8 2 What Is a Bank? 2.1 Introduction Without discussing the theoretical question of what constitutes a financial intermediary at great length, this book accepts that there are financial inter- mediaries, such as banks, insurance companies and investment companies which are instrumental to the functioning of the financial markets as their activities provide the institutional framework. Clearly, there would not be any significant financial market without these financial institutions, nei- ther would there be any financial institution without the existence of such markets. The structure of a financial system is to a great extent contingent upon the institutions that make up the system. Unlike insurance and investment companies, banks play the most important role in maintaining the stability of a financial system. Therefore, this work focuses on banks, which makes it necessary to consider the definition of a “bank”. This can be approached in a threefold manner (Büschgen, 1993, pp. 9–26). Büschgen differentiates between a legal, a microeconomic and a macroeconomic definition of a bank – an approach that also appears functional for this book. Consequently, this chapter first provides an overview of the bank-specific directives adopted at EU level, and then outlines the legal definitions of a bank in the United Kingdom and Germany. The second half of this chapter considers the microeconomic definition of a bank, and concludes with the inextricably linked macroeconomic concept of a bank. 2.2 The rationale for banking regulation Prior to the discussion of a bank’s legal status in the EU, the United Kingdom and Germany, it is necessary to explain why the banking sector is so heavily regulated. The banks’ pivotal role within the financial system essentially stems from their transformation function, which implies the matching of monetary surplus and deficit units (Mishkin, 1986; Howells & Bain, 2002).
eBook - ePubFinancial Geography
A Banker's View
- Risto Laulajainen(Author)
- 2003(Publication Date)
- Taylor & Francis(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.
eBook - PDF- Scott Besley, Eugene Brigham, Scott Besley(Authors)
- 2021(Publication Date)
- Cengage Learning EMEA(Publisher)
5. Related services—A system of specialized intermedi- aries offers more than just a network of mechanisms to transfer funds from savers to borrowers. Many intermediaries provide other financial services, such as check clearing services, insurance, retirement funds, and trust services. 3-4a Types of Financial Intermediaries In the United States, a large set of specialized, highly ef- ficient financial intermediaries has evolved. Although each type of intermediary originated to satisfy a particular need in the financial markets, recent competition, deregulation, and government policy have created such a rapidly chang- ing arena that different institutions currently offer financial products and perform services that previously were re- served for other financial institutions. This trend has caused the lines among the various types of intermediaries to be- come blurred. Still, some degree of institutional identity persists, and these distinctions are discussed in this section. Commercial Banks. Commercial banks, commonly referred to simply as banks, are the traditional “department stores of finance”—that is, they offer a wide range of products and services to a variety of customers. Originally, banks were established to serve the needs of commerce, or business—hence the name “commercial banks.” Today, commercial banks, which represent one of the largest types of financial intermediaries, still represent the primary source of short-term business loans. Histori- cally, banks were the institutions that han- dled checking accounts financial intermediaries Organizations that create various loans and investments from funds provided by depositors. 63 CHAPTER 3: The Financial Environment: Markets, Institutions, and Investment Banking Copyright 2022 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
eBook - PDF- Subrata Ghatak, José R. Sánchez-Fung(Authors)
- 2017(Publication Date)
- Red Globe Press(Publisher)
7.2 The commercial banks: the creation of bank deposits ..................................................................................... The commercial banks in developing countries perform a variety of what are their traditional functions in developed economies. These banks accept deposits and lend to creditworthy borrowers against suitable collateral. They offer interest on the deposits. They also charge interest on loans advanced; these rates are known as the borrowing rates. The difference between the borrowing rates and the deposit rates is revenue for the banks. The demand for bank credit very much depends on the level of economic activity, the cost of credit and the rate of return on the use of bank credit. Similarly, the supply of bank credit also depends on the level of income, the confidence in the banks and the interest rates paid by the banks vis-à-vis the rates that could be earned from other types of investment. Note also that the ability to create ‘bank money’ or credit gives the banks considerable power to satisfy the demand for bank credit. However, the limit of credit creation is usually set by the rate of profit on assets held by the banks. Given the narrow size of the bill market and the limited stock of financial assets in developing countries, the commercial banks are likely to reach their limits sooner in the developing countries than the banks in developed ones. The other important factor that sets a limit on the capacity of the banks to create additional deposits is the unwillingness of members of the public to hold additional bank deposits. In most developing countries, it has been observed that a high proportion of ................................................................... Monetary institutions in developing countries 115 money is held in currency and a low proportion in bank deposits (Furness, 1975). Such a situation implies that the majority of loans have to be made in currency, which hinders deposit creation.
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