INTRODUCTION

A bank is a financial institution licensed to receive deposits and make loans. Banks
may also provide financial services, such as wealth management, currency
exchange and safe deposit boxes. There are two types of banks: commercial/retail
banks and investment banks.

Central Banks:

Definition: A central bank is an independent national authority that

conducts monetary policy, regulates banks, and provides financial services
including economic research. Its goals are to stabilize the nation's currency, keep
unemployment low and prevent inflation.

Most central banks are governed by a board consisting of its member banks. The
country's chief elected official appoints the director.

The national legislative body approves him or her. That keeps the central bank
aligned with the nation's long-term policy goals. At the same time, it's free of
political influence in its day-to-day operations. The Bank of England first
established that model. For more on the central bank of the United States, see Who
Owns the Federal Reserve?

Monetary Policy

Central banks affect economic growth by controlling the liquidity in the financial
system. They have three monetary policy tools to achieve this goal.

First, they set a reserve requirement. That tells their network of private banks how
much cash to have on hand each night. That controls how much banks can lend.

Second, they use open market operations to buy and sell securities from member
banks. It changes the amount of cash on hand without changing the reserve
requirement. They used this tool during the 2008 financial crisis. Banks bought
government bonds and mortgage-backed securities to stabilize the banking system.

The Federal Reserve added $4 trillion to its balance sheet with Quantitative Easing.

Third, they set targets on interest rates they charge their member banks. That guides
rates for loans, mortgages, and bonds. Raising interest rates slows growth,
preventing inflation. That's known as a contractionary monetary policy.

Bank Regulation

In 2010, the U.S. Congress gave more regulatory authority to the Federal Reserve
with bank reform. The Consumer Financial Protection Agency gave regulators the
power to split up large banks, so they don't become "too big to fail." It eliminates
loopholes for hedge funds, and mortgage brokers. The Volcker Rule bans banks
from owning hedge funds and using investors' money to purchase
risky derivatives for their own profit.

It established the Financial Stability Oversight Council. It warns of risks that affect
the entire financial industry. It can also recommend that the Federal Reserve
regulate any non-bank financial firms. That's to keep insurance companies or hedge
funds from becoming too big to fail. For more, see Dodd-Frank Wall Street Reform
Act.

Provide Financial Services

Most central banks produce regular economic statistics to guide fiscal

policy decisions. Here are examples of reports provided by the Federal Reserve:

Beige Book: A monthly report from regional Federal Reserve banks on the
state of the economy in their areas.
Monetary Policy Report: Semiannual report on the economy
Credit Card Debt: A monthly report on consumer credit.

Commercial banks are of three types, which are as follows:

(a) Public Sector Banks:
Refer to a type of commercial banks that are nationalized by the government
of a country. In public sector banks, the major stake is held by the
government. In India, public sector banks operate under the guidelines of
Reserve Bank of India (RBI), which is the central bank. Some of the Indian
public sector banks are State Bank of India (SBI), Corporation Bank, Bank
of Baroda, Dena Bank, and Punjab National Bank.

(b) Private Sector Banks: Refer to a kind of commercial banks in which major
part of share capital is held by private businesses and individuals. These banks are
registered as companies with limited liability. Some of the Indian private sector
banks are Vysya Bank, Industrial Credit and Investment Corporation of India
(ICICI) Bank, and Housing Development Finance Corporation (HDFC) Bank.

(c) Foreign Banks:

Refer to commercial banks that are headquartered in a foreign country, but operate
branches in different countries. Some of the foreign banks operating in India are
Hong Kong and Shanghai Banking Corporation (HSBC), Citibank, American
Express Bank, Standard & Chartered Bank, and Grindlays Bank. In India, since
financial reforms of 1991, there is a rapid increase in the number of foreign banks.
 Commercial banks mark significant importance in the economic development of a
country as well as serving the financial requirements of the general public.

Development Banks in India

Working capital requirements are provided by commercial banks, indigenous
bankers, co-operative banks, money lenders, etc. The money market provides short-
term funds which mean working capital requirements.

The long term requirements of business concerns are provided by industrial banks,
and the various long term lending institutions which are created by government. In
India these long term lending institutions are collectively referred as development
banks. They are:

1. Industrial Finance Corporation of India (IFCI), 1948

2. Industrial Credit and Investment Corporation of India (ICICI), 1955
3. Industrial Development of Bank of India (IDBI), 1964
4. State Finance Corporation (SFC), 1951
5. Small Industries Development Bank of India (SIDBI), 1990
6. Export Import Bank (EXIM)
7. Small Industries Development Corporation (SIDCO)
8. National Bank for Agriculture and Rural Development (NABARD).
In addition to these institutions, there are also institutions such as Life Insurance
Corporation of India, General Insurance Corporation of India, National Housing
Bank, Unit Trust of India, etc., which are providing investment funds.

'Foreign Exchange'

Foreign exchange is the exchange of one currency for another or the conversion of
one currency into another currency.

Foreign exchange also refers to the global market where currencies are traded
virtually around the clock. The largest trading centers are London, New York,
Singapore and Tokyo. The term foreign exchange is usually abbreviated as "forex"
and occasionally as "FX."

COOPERATIVE BANK:

Cooperative banking is retail and commercial banking organized on

a cooperative basis. Cooperative banking institutions take deposits and lend money
in most parts of the world.
Cooperative banking, as discussed here, includes retail banking carried out by credit
unions, mutual savings banks, building societies and cooperatives, as well as
commercial banking services provided by mutual organizations (such
as cooperative federations) to cooperative businesses.
Cooperative banks[edit]
Larger institutions are often called cooperative banks. Some are tightly integrated
federations of credit unions, though those member credit unions may not subscribe
to all nine of the strict principles of the World Council of Credit Unions (WOCCU).
Cooperative banking systems are also usually more integrated than credit union
systems. Local branches of cooperative banks select their own boards of directors
and manage their own operations, but most strategic decisions require approval
from a central office. Credit unions usually retain strategic decision-making at a
local level, though they share back-office functions, such as access to the global
payments system, by federating.
Some cooperative banks are criticized for diluting their cooperative principles.
Principles 2-4 of the "Statement on the Co-operative Identity" can be interpreted to
require that members must control both the governance systems and capital of their
cooperatives. A cooperative bank that raises capital on public stock markets creates
a second class of shareholders who compete with the members for control. In some
circumstances, the members may lose control. This effectively means that the bank
ceases to be a cooperative. Accepting deposits from non-members may also lead to
a dilution of member control.

CONCLUSION:

A bank account is not only about saving money, it's also about managing money.
Opening an account is a smart move - it means that you can access a service that
helps you control your money, and which may help you borrow at some time in the
future, if you need to do so.

But do remember that you are the customer - that means you have rights and if
you're not happy, you can complain, and you can move your account somewhere
else.