Bank

A bank is a financial inst it ut ion t hat accept s deposit s from t he public and creat es a demand
deposit while simult aneously making loans.[1] Lending act ivit ies can be direct ly performed by t he
bank or indirect ly t hrough capit al market s.

Because banks play an import ant role in financial st abilit y and t he economy of a count ry, most
jurisdict ions exercise a high degree of regulat ion over banks. Most count ries have
inst it ut ionalized a syst em known as fract ional reserve banking, under which banks hold liquid
asset s equal t o only a port ion of t heir current liabilit ies. In addit ion t o ot her regulat ions int ended
t o ensure liquidit y, banks are generally subject t o minimum capit al requirement s based on an
int ernat ional set of capit al st andards, t he Basel Accords.

Banking in it s modern sense evolved in t he fourt eent h cent ury in t he prosperous cit ies of
Renaissance It aly but in many ways funct ioned as a cont inuat ion of ideas and concept s of credit
and lending t hat had t heir root s in t he ancient world. In t he hist ory of banking, a number of
banking dynast ies — not ably, t he Medicis, t he Fuggers, t he Welsers, t he Berenbergs, and t he
Rot hschilds — have played a cent ral role over many cent uries. The oldest exist ing ret ail bank is
Banca Mont e dei Paschi di Siena (founded in 1472), while t he oldest exist ing merchant bank is
Berenberg Bank (founded in 1590).

History
This 15th-century painting depicts money-dealers at a banca (bench) during the Cleansing of the Temple.

The concept of banking may have begun in ancient Assyria and Babylonia wit h merchant s
offering loans of grain as collat eral wit hin a bart er syst em. Lenders in ancient Greece and during
t he Roman Empire added t wo import ant innovat ions: t hey accept ed deposit s and changed
money. Archaeology from t his period in ancient China and India also shows evidence of money
lending.

The present era of banking can be t raced t o medieval and early Renaissance It aly, t o t he rich
cit ies in t he cent re and nort h like Florence, Lucca, Siena, Venice and Genoa. The Bardi and Peruzzi
families dominat ed banking in 14t h-cent ury Florence, est ablishing branches in many ot her part s
of Europe.[2] Giovanni di Bicci de' Medici set up one of t he most famous It alian banks, t he Medici
Bank, in 1397.[3] The Republic of Genoa founded t he earliest -known st at e deposit bank, Banco di
San Giorgio (Bank of St . George), in 1407 at Genoa, It aly.[4]

Fract ional reserve banking and t he issue of banknot es emerged in t he 17t h and 18t h cent uries.
Merchant s st art ed t o st ore t heir gold wit h t he goldsmit hs of London, who possessed privat e
vault s, and who charged a fee for t hat service. In exchange for each deposit of precious met al,
t he goldsmit hs issued receipt s cert ifying t he quant it y and purit y of t he met al t hey held as a
bailee; t hese receipt s could not be assigned, only t he original deposit or could collect t he st ored
goods.

Gradually t he goldsmit hs began t o lend t he money out on behalf of t he deposit or, and
promissory not es (which evolved int o banknot es) were issued for money deposit ed as a loan t o
t he goldsmit h. Thus by t he 19t h cent ury we find "[i]n ordinary cases of deposit s of money wit h
banking corporat ions, or bankers, t he t ransact ion amount s t o a mere loan or mutuum, and t he
bank is t o rest ore, not t he same money, but an equivalent sum, whenever it is demanded".[5]
and "
[m]oney, when paid int o a bank, ceases alt oget her t o be t he money of t he principal (see Parker v.
Marchant , 1 Phillips 360); it is t hen t he money of t he banker, who is bound t o ret urn an equivalent
by paying a similar sum t o t hat deposit ed wit h him when he is asked for it ."
[6]
The goldsmit h paid
int erest on deposit s. Since t he promissory not es were payable on demand, and t he advances
(loans) t o t he goldsmit h's cust omers were repayable over a longer t ime-period, t his was an early
form of fract ional reserve banking. The promissory not es developed int o an assignable
inst rument which could circulat e as a safe and convenient form of money[7]
backed by t he
goldsmit h's promise t o pay,[8]
allowing goldsmit hs t o advance loans wit h lit t le risk of default .[9]
Thus t he goldsmit hs of London became t he forerunners of banking by creat ing new money
based on credit .

Interior of the Helsinki Branch of the Vyborg-Bank in the 1910s

The Bank of England originat ed t he permanent issue of banknot es in 1695.[10] The Royal Bank of
Scot land est ablished t he first overdraft facilit y in 1728.[11] By t he beginning of t he 19t h cent ury
Lubbock's Bank had est ablished a bankers' clearing house in London t o allow mult iple banks t o
clear t ransact ions. The Rot hschilds pioneered int ernat ional finance on a large scale,[12][13]
financing t he purchase of shares in t he Suez canal for t he Brit ish government in 1875.[14]

Etymology

The word bank was t aken int o Middle English from Middle French banque, from Old It alian banca,
meaning "t able", from Old High German banc, bank "bench, count er". Benches were used as
makeshift desks or exchange count ers during t he Renaissance by Florent ine bankers, who used
t o make t heir t ransact ions at op desks covered by green t ableclot hs.[15][16]

Definition

Sealing of the Bank of England Charter (1694), by Lady Jane Lindsay, 1905.

The definit ion of a bank varies from count ry t o count ry. See t he relevant count ry pages for more
informat ion.

Under English common law, a banker is defined as a person who carries on t he business of banking
by conduct ing current account s for t heir cust omers, paying cheques drawn on t hem and also
collect ing cheques for t heir cust omers.[17]

Banco de Venezuela in Coro.

Branch of Nepal Bank in Pokhara, Western Nepal.

In most common law jurisdict ions t here is a Bills of Exchange Act t hat codifies t he law in relat ion
t o negot iable inst rument s, including cheques, and t his Act cont ains a st at ut ory definit ion of t he
t erm banker: banker includes a body of persons, whet her incorporat ed or not , who carry on t he
business of banking' (Sect ion 2, Int erpret at ion). Alt hough t his definit ion seems circular, it is
act ually funct ional, because it ensures t hat t he legal basis for bank t ransact ions such as
cheques does not depend on how t he bank is st ruct ured or regulat ed.

The business of banking is in many common law count ries not defined by st at ut e but by common
law, t he definit ion above. In ot her English common law jurisdict ions t here are st at ut ory definit ions
of t he business of banking or banking business. When looking at t hese definit ions it is import ant
t o keep in mind t hat t hey are defining t he business of banking for t he purposes of t he legislat ion,
and not necessarily in general. In part icular, most of t he definit ions are from legislat ion t hat has
t he purpose of regulat ing and supervising banks rat her t han regulat ing t he act ual business of
banking. However, in many cases t he st at ut ory definit ion closely mirrors t he common law one.
Examples of st at ut ory definit ions:

"banking business" means t he business of receiving money on current or deposit account ,

paying and collect ing cheques drawn by or paid in by cust omers, t he making of advances t o
cust omers, and includes such ot her business as t he Aut horit y may prescribe for t he purposes
of t his Act ; (Banking Act (Singapore), Sect ion 2, Int erpret at ion).

"banking business" means t he business of eit her or bot h of t he following:

1. receiving from t he general public money on current , deposit , savings or ot her similar account
repayable on demand or wit hin less t han [3 mont hs] ... or wit h a period of call or not ice of
less t han t hat period;

2. paying or collect ing cheques drawn by or paid in by cust omers.[18]

Since t he advent of EFTPOS (Elect ronic Funds Transfer at Point Of Sale), direct credit , direct
debit and int ernet banking, t he cheque has lost it s primacy in most banking syst ems as a
payment inst rument . This has led legal t heorist s t o suggest t hat t he cheque based definit ion
should be broadened t o include financial inst it ut ions t hat conduct current account s for
cust omers and enable cust omers t o pay and be paid by t hird part ies, even if t hey do not pay and
collect cheques .[19]

Standard business

Large door to an old bank vault.

Banks act as payment agent s by conduct ing checking or current account s for cust omers, paying
cheques drawn by cust omers in t he bank, and collect ing cheques deposit ed t o cust omers'
current account s. Banks also enable cust omer payment s via ot her payment met hods such as
Aut omat ed Clearing House (ACH), Wire t ransfers or t elegraphic t ransfer, EFTPOS, and
aut omat ed t eller machines (ATMs).

Banks borrow money by accept ing funds deposit ed on current account s, by accept ing t erm
deposit s, and by issuing debt securit ies such as banknot es and bonds. Banks lend money by
making advances t o cust omers on current account s, by making inst allment loans, and by
invest ing in market able debt securit ies and ot her forms of money lending.

Banks provide different payment services, and a bank account is considered indispensable by
most businesses and individuals. Non-banks t hat provide payment services such as remit t ance
companies are normally not considered as an adequat e subst it ut e for a bank account .

Banks can creat e new money when t hey make a loan. New loans t hroughout t he banking syst em
generat e new deposit s elsewhere in t he syst em. The money supply is usually increased by t he
act of lending, and reduced when loans are repaid fast er t han new ones are generat ed. In t he
Unit ed Kingdom bet ween 1997 and 2007, t here was an increase in t he money supply, largely
caused by much more bank lending, which served t o push up propert y prices and increase privat e
debt . The amount of money in t he economy as measured by M4 in t he UK went from £750 billion
t o £1700 billion bet ween 1997 and 2007, much of t he increase caused by bank lending.[20] If all
t he banks increase t heir lending t oget her, t hen t hey can expect new deposit s t o ret urn t o t hem
and t he amount of money in t he economy will increase. Excessive or risky lending can cause
borrowers t o default , t he banks t hen become more caut ious, so t here is less lending and
t herefore less money so t hat t he economy can go from boom t o bust as happened in t he UK and
many ot her West ern economies aft er 2007.

A NatWest mobile banking van in the town of Berkeley, Gloucestershire, England. The van visits Berkeley for two hours
each Thursday following the closure of the town's NatWest branch in 2015.

Range of activities

Act ivit ies undert aken by banks include personal banking, corporat e banking, invest ment banking,
privat e banking, t ransact ion banking, insurance, consumer finance, t rade finance and ot her relat ed.

Channels
An American bank in Maryland.

Banks offer many different channels t o access t heir banking and ot her services:

Branch, in-person banking in a ret ail locat ion

Aut omat ed t eller machine banking adjacent t o or remot e from t he bank

Bank by mail: Most banks accept cheque deposit s via mail and use mail t o communicat e t o
t heir cust omers

Online banking over t he Int ernet t o perform mult iple t ypes of t ransact ions

Mobile banking is using one's mobile phone t o conduct banking t ransact ions

Telephone banking allows cust omers t o conduct t ransact ions over t he t elephone wit h an
aut omat ed at t endant , or when request ed, wit h a t elephone operat or

Video banking performs banking t ransact ions or professional banking consult at ions via a
remot e video and audio connect ion. Video banking can be performed via purpose built banking
t ransact ion machines (similar t o an Aut omat ed t eller machine) or via a video conference
enabled bank branch clarificat ion

Relat ionship manager, most ly for privat e banking or business banking, who visit s cust omers at
t heir homes or businesses

Direct Selling Agent , who works for t he bank based on a cont ract , whose main job is t o
increase t he cust omer base for t he bank

Business models

A bank can generat e revenue in a variet y of different ways including int erest , t ransact ion fees
and financial advice. Tradit ionally, t he most significant met hod is via charging int erest on t he
capit al it lends out t o cust omers.[21] The bank profit s from t he difference bet ween t he level of
int erest it pays for deposit s and ot her sources of funds, and t he level of int erest it charges in it s
lending act ivit ies.

This difference is referred t o as t he spread bet ween t he cost of funds and t he loan int erest
rat e. Hist orically, profit abilit y from lending act ivit ies has been cyclical and dependent on t he
needs and st rengt hs of loan cust omers and t he st age of t he economic cycle. Fees and financial
advice const it ut e a more st able revenue st ream and banks have t herefore placed more emphasis
on t hese revenue lines t o smoot h t heir financial performance.

In t he past 20 years, American banks have t aken many measures t o ensure t hat t hey remain
profit able while responding t o increasingly changing market condit ions.

First , t his includes t he Gramm–Leach–Bliley Act , which allows banks again t o merge wit h
invest ment and insurance houses. Merging banking, invest ment , and insurance funct ions allows
t radit ional banks t o respond t o increasing consumer demands for "one-st op shopping" by
enabling cross-selling of product s (which, t he banks hope, will also increase profit abilit y).

Second, t hey have expanded t he use of risk-based pricing from business lending t o consumer
lending, which means charging higher int erest rat es t o t hose cust omers t hat are considered t o
be a higher credit risk and t hus increased chance of default on loans. This helps t o offset t he
losses from bad loans, lowers t he price of loans t o t hose who have bet t er credit hist ories, and
offers credit product s t o high risk cust omers who would ot herwise be denied credit .

Third, t hey have sought t o increase t he met hods of payment processing available t o t he
general public and business client s. These product s include debit cards, prepaid cards, smart
cards, and credit cards. They make it easier for consumers t o convenient ly make t ransact ions
and smoot h t heir consumpt ion over t ime (in some count ries wit h underdeveloped financial
syst ems, it is st ill common t o deal st rict ly in cash, including carrying suit cases filled wit h cash
t o purchase a home).
However, wit h t he convenience of easy credit , t here is also increased risk t hat consumers will
mismanage t heir financial resources and accumulat e excessive debt . Banks make money from
card product s t hrough int erest charges and fees charged t o cardholders, and t ransact ion fees
t o ret ailers[22] who accept t he bank's credit and/or debit cards for payment s.

This helps in making a profit and facilit at es economic development as a whole.[23]

Recent ly, as banks have been faced wit h pressure from fint echs, new and addit ional business
models have been suggest ed such as freemium, monet izat ion of dat a, whit e-labeling of banking
and payment applicat ions, or t he cross-selling of complement ary product s.[24]
Products

A former building society, now a modern retail bank in Leeds, West Yorkshire.

An interior of a branch of National Westminster Bank on Castle Street, Liverpool

Ret ail

Savings account

Recurring deposit account

Fixed deposit account

Money market account

Cert ificat e of deposit (CD)

Individual ret irement account (IRA)

 Credit card

Debit card

Mort gage

Mut ual fund

Personal loan

Time deposit s

ATM card

Current account s

Cheque books

Aut omat ed Teller Machine (ATM)

Nat ional Elect ronic Fund Transfer (NEFT)

Real Time Gross Set t lement (RTGS)

Business (or commercial/invest ment ) banking
Business loan

Capit al raising (equit y / debt / hybrids)

Revolving credit

Risk management (foreign exchange (FX)), int erest rat es, commodit ies, derivat ives

Term loan

Cash management services (lock box, remot e deposit capt ure, merchant processing)

Credit services

Capital and risk

Banks face a number of risks in order t o conduct t heir business, and how well t hese risks are
managed and underst ood is a key driver behind profit abilit y, and how much capit al a bank is
required t o hold. Bank capit al consist s principally of equit y, ret ained earnings and subordinat ed
debt .

Aft er t he 2007-2009 financial crisis, regulat ors force banks t o issue Contingent convertible
bonds (CoCos). These are hybrid capit al securit ies t hat absorb losses in accordance wit h t heir
cont ract ual t erms when t he capit al of t he issuing bank falls below a cert ain level. Then debt is
reduced and bank capit alizat ion get s a boost . Owing t o t heir capacit y t o absorb losses, CoCos
have t he pot ent ial t o sat isfy regulat ory capit al requirement .[25][26]

Some of t he main risks faced by banks include:

Credit risk: risk of loss arising from a borrower who does not make payment s as promised.[27]

Liquidit y risk: risk t hat a given securit y or asset cannot be t raded quickly enough in t he market
t o prevent a loss (or make t he required profit ).

Market risk: risk t hat t he value of a port folio, eit her an invest ment port folio or a t rading
port folio, will decrease due t o t he change in value of t he market risk fact ors.

Operat ional risk: risk arising from execut ion of a company's business funct ions.

Reput at ional risk: a t ype of risk relat ed t o t he t rust wort hiness of business.

Macroeconomic risk: risks relat ed t o t he aggregat e economy t he bank is operat ing in.[28]

The capit al requirement is a bank regulat ion, which set s a framework wit hin which a bank or
deposit ory inst it ut ion must manage it s balance sheet . The cat egorizat ion of asset s and capit al
is highly st andardized so t hat it can be risk weight ed.

Banks in the economy

SEB main building in Tallinn, Estonia

Economic functions

The economic funct ions of banks include:

1. Issue of money, in t he form of banknot es and current account s subject t o cheque or

payment at t he cust omer's order. These claims on banks can act as money because t hey
are negot iable or repayable on demand, and hence valued at par. They are effect ively
t ransferable by mere delivery, in t he case of banknot es, or by drawing a cheque t hat t he
payee may bank or cash.

2. Net t ing and set t lement of payment s – banks act as bot h collect ion and paying agent s for
cust omers, part icipat ing in int erbank clearing and set t lement syst ems t o collect , present ,
be present ed wit h, and pay payment inst rument s. This enables banks t o economize on
reserves held for set t lement of payment s, since inward and out ward payment s offset each
ot her. It also enables t he offset t ing of payment flows bet ween geographical areas,
reducing t he cost of set t lement bet ween t hem.

3. Credit int ermediat ion – banks borrow and lend back-t o-back on t heir own account as middle
men.

4. Credit qualit y improvement – banks lend money t o ordinary commercial and personal
borrowers (ordinary credit qualit y), but are high qualit y borrowers. The improvement comes
from diversificat ion of t he bank's asset s and capit al which provides a buffer t o absorb
losses wit hout default ing on it s obligat ions. However, banknot es and deposit s are generally
unsecured; if t he bank get s int o difficult y and pledges asset s as securit y, t o raise t he
funding it needs t o cont inue t o operat e, t his put s t he not e holders and deposit ors in an
economically subordinat ed posit ion.

5. Asset liabilit y mismat ch/Mat urit y t ransformat ion – banks borrow more on demand debt and
short t erm debt , but provide more long t erm loans. In ot her words, t hey borrow short and
lend long. Wit h a st ronger credit qualit y t han most ot her borrowers, banks can do t his by
aggregat ing issues (e.g. accept ing deposit s and issuing banknot es) and redempt ions (e.g.
wit hdrawals and redempt ion of banknot es), maint aining reserves of cash, invest ing in
market able securit ies t hat can be readily convert ed t o cash if needed, and raising
replacement funding as needed from various sources (e.g. wholesale cash market s and
securit ies market s).
 6. Money creat ion/dest ruct ion – whenever a bank gives out a loan in a fract ional-reserve
banking syst em, a new sum of money is creat ed and conversely, whenever t he principal on
t hat loan is repaid money is dest royed.

Bank crisis

OTP Bank in Prešov (Slovakia)

Banks are suscept ible t o many forms of risk which have t riggered occasional syst emic crises.[29]
These include liquidit y risk (where many deposit ors may request wit hdrawals in excess of
available funds), credit risk (t he chance t hat t hose who owe money t o t he bank will not repay it ),
and int erest rat e risk (t he possibilit y t hat t he bank will become unprofit able, if rising int erest
rat es force it t o pay relat ively more on it s deposit s t han it receives on it s loans).

Banking crises have developed many t imes t hroughout hist ory when one or more risks have
emerged for a banking sect or as a whole. Prominent examples include t he bank run t hat occurred
during t he Great Depression, t he U.S. Savings and Loan crisis in t he 1980s and early 1990s, t he
Japanese banking crisis during t he 1990s, and t he sub-prime mort gage crisis in t he 2000s.

Size of global banking industry

Asset s of t he largest 1,000 banks in t he world grew by 6.8% in t he 2008/2009 financial year t o a
record US$96.4 t rillion while profit s declined by 85% t o US$115 billion. Growt h in asset s in
adverse market condit ions was largely a result of recapit alizat ion. EU banks held t he largest
share of t he t ot al, 56% in 2008/2009, down from 61% in t he previous year. Asian banks' share
increased from 12% t o 14% during t he year, while t he share of US banks increased from 11% t o
13%. Fee revenue generat ed by global invest ment banking t ot alled US$66.3 billion in 2009, up
12% on t he previous year.[30]

The Unit ed St at es has t he most banks in t he world in t erms of inst it ut ions (5,330 as of 2015)
and possibly branches (81,607 as of 2015).[31] This is an indicat or of t he geography and
regulat ory st ruct ure of t he US, result ing in a large number of small t o medium-sized inst it ut ions
in it s banking syst em. As of November 2009, China's t op 4 banks have in excess of 67,000
branches (ICBC:18000+, BOC:12000+, CCB:13000+, ABC:24000+) wit h an addit ional 140 smaller
banks wit h an undet ermined number of branches.
Japan had 129 banks and 12,000 branches. In
2004, Germany, France, and It aly each had more t han 30,000 branches – more t han double t he
15,000 branches in t he UK.[30]

Mergers and acquisitions

Bet ween 1985 and 2018 banks engaged in around 28,798 mergers or acquisit ions, eit her as t he
acquirer or t he t arget company. The overall known value of t hese deals cumulat es t o around
5,169 bil. USD.[32] In t erms of value, t here have been t wo major waves (1999 and 2007) which
bot h peaked at around 460 bil. USD followed by a st eep decline (-82% from 2007 unt il 2018).

Here is a list of t he largest deals in hist ory in t erms of value wit h part icipat ion from at least one
bank:
 Acquiror Target Value
Dat e Acquiror Acquiror Target
mid Target name mid t ransa
announced name nat ion nat ion
indust ry indust ry ($mil)

2007-04- RFS Ot her ABN-AMRO

Net herlands Banks Net herlands 98,18
25 Holdings BV financials Holding N.V.

1998-04- Travelers Unit ed Unit ed

Insurance Cit icorp Banks 72,55
06 Group Inc St at es St at es

2014-09-
UBS AG Banks Swit zerland UBS AG Banks Swit zerland 65,89
29

Nat ionsBank
Corp,
1998-04- Unit ed BankAmerica Unit ed
Charlot t e, Banks Banks 61,63
13 St at es Corp St at es
Nort h
Carolina

2004-01- JPMorgan Unit ed Bank One Corp, Unit ed

Banks Banks 58,66
14 Chase & Co St at es Chicago, Illinois St at es

Bank of Fleet Bost on

2003-10- Unit ed Unit ed
America Banks Financial Corp, Banks 49,26
27 St at es St at es
Corp Massachuset t s

Bank of
2008-09- Unit ed Merrill Lynch & Unit ed
America Banks Brokerage 48,76
14 St at es Co Inc St at es
Corp

1999-10- Sumit omo Sakura Bank

Banks Japan Banks Japan 45,49
13 Bank Lt d Lt d

2009-02- HM Nat ional Unit ed Royal Bank of Unit ed

Banks 41,87
26 Treasury agency Kingdom Scot land Group Kingdom

Mit subishi
2005-02- Tokyo UFJ Holdings
Banks Japan Banks Japan 41,43
18 Financial Inc
Group

Regulation
Current ly, commercial banks are regulat ed in most jurisdict ions by government ent it ies and
require a special bank license t o operat e.

Usually, t he definit ion of t he business of banking for t he purposes of regulat ion is ext ended t o
include accept ance of deposit s, even if t hey are not repayable t o t he cust omer's order –
alt hough money lending, by it self, is generally not included in t he definit ion.

Unlike most ot her regulat ed indust ries, t he regulat or is t ypically also a part icipant in t he market ,
being eit her a publicly or privat ely governed cent ral bank. Cent ral banks also t ypically have a
monopoly on t he business of issuing banknot es. However, in some count ries t his is not t he case.
In t he UK, for example, t he Financial Services Aut horit y licenses banks, and some commercial
banks (such as t he Bank of Scot land) issue t heir own banknot es in addit ion t o t hose issued by
t he Bank of England, t he UK government 's cent ral bank.

Global headquarters of the Bank for International Settlements in Basel

Banking law is based on a cont ract ual analysis of t he relat ionship bet ween t he bank (defined
above) and t he customer – defined as any ent it y for which t he bank agrees t o conduct an
account .

The law implies right s and obligat ions int o t his relat ionship as follows:

The bank account balance is t he financial posit ion bet ween t he bank and t he cust omer: when
t he account is in credit , t he bank owes t he balance t o t he cust omer; when t he account is
overdrawn, t he cust omer owes t he balance t o t he bank.
 The bank agrees t o pay t he cust omer's checks up t o t he amount st anding t o t he credit of t he
cust omer's account , plus any agreed overdraft limit .

The bank may not pay from t he cust omer's account wit hout a mandat e from t he cust omer,
e.g. a cheque drawn by t he cust omer.

The bank agrees t o prompt ly collect t he cheques deposit ed t o t he cust omer's account as t he
cust omer's agent , and t o credit t he proceeds t o t he cust omer's account .

And, t he bank has a right t o combine t he cust omer's account s, since each account is just an
aspect of t he same credit relat ionship.

The bank has a lien on cheques deposit ed t o t he cust omer's account , t o t he ext ent t hat t he
cust omer is indebt ed t o t he bank.

The bank must not disclose det ails of t ransact ions t hrough t he cust omer's account  – unless
t he cust omer consent s, t here is a public dut y t o disclose, t he bank's int erest s require it , or t he
law demands it .

The bank must not close a cust omer's account wit hout reasonable not ice, since cheques are
out st anding in t he ordinary course of business for several days.

These implied cont ract ual t erms may be modified by express agreement bet ween t he cust omer
and t he bank. The st at ut es and regulat ions in force wit hin a part icular jurisdict ion may also
modify t he above t erms and/or creat e new right s, obligat ions or limit at ions relevant t o t he bank-
cust omer relat ionship.

Some t ypes of financial inst it ut ion, such as building societ ies and credit unions, may be part ly or
wholly exempt from bank license requirement s, and t herefore regulat ed under separat e rules.

The requirement s for t he issue of a bank license vary bet ween jurisdict ions but t ypically include:

Minimum capit al
 Minimum capit al rat io

'Fit and Proper' requirement s for t he bank's cont rollers, owners, direct ors, or senior officers

Approval of t he bank's business plan as being sufficient ly prudent and plausible.

Different types of banking

An illustration of Northern National Bank as advertised in a 1921 book highlighting the opportunities available in
Toledo, Ohio

Banks' act ivit ies can be divided int o:

ret ail banking, dealing direct ly wit h individuals and small businesses;

business banking, providing services t o mid-market business;

corporat e banking, direct ed at large business ent it ies;

privat e banking, providing wealt h management services t o high-net -wort h individuals and
families;

invest ment banking, relat ing t o act ivit ies on t he financial market s.

Most banks are profit -making, privat e ent erprises. However, some are owned by government , or
are non-profit organizat ions.

Types of bank
National Bank of the Republic, Salt Lake City 1908

The BANK of Greenland, Nuuk

An office of Nordea bank in Mariehamn, Åland

ATM Al-Rajhi Bank

National Copper Bank, Salt Lake City 1911

A branch of Union Bank in, Visakhapatnam

Commercial banks: t he t erm used for a normal bank t o dist inguish it from an invest ment bank.
Aft er t he Great Depression, t he U.S. Congress required t hat banks only engage in banking
act ivit ies, whereas invest ment banks were limit ed t o capit al market act ivit ies. Since t he t wo
no longer have t o be under separat e ownership, some use t he t erm "commercial bank" t o refer
t o a bank or a division of a bank t hat most ly deals wit h deposit s and loans from corporat ions or
large businesses.

Communit y banks: locally operat ed financial inst it ut ions t hat empower employees t o make
local decisions t o serve t heir cust omers and t he part ners.

Communit y development banks: regulat ed banks t hat provide financial services and credit t o
under-served market s or populat ions.

Land development banks: The special banks providing long-t erm loans are called land
development banks (LDB). The hist ory of LDB is quit e old. The first LDB was st art ed at Jhang
in Punjab in 1920. The main object ive of t he LDBs are t o promot e t he development of land,
agricult ure and increase t he agricult ural product ion. The LDBs provide long-t erm finance t o
members direct ly t hrough t heir branches.[33]

Credit unions or co-operat ive banks: not -for-profit cooperat ives owned by t he deposit ors and
oft en offering rat es more favourable t han for-profit banks. Typically, membership is rest rict ed
t o employees of a part icular company, resident s of a defined area, members of a cert ain union
or religious organizat ions, and t heir immediat e families.

Post al savings banks: savings banks associat ed wit h nat ional post al syst ems.

Privat e banks: banks t hat manage t he asset s of high-net -wort h individuals. Hist orically a
minimum of US$1 million was required t o open an account , however, over t he last years many
privat e banks have lowered t heir ent ry hurdles t o US$350,000 for privat e invest ors.[34]

Offshore banks: banks locat ed in jurisdict ions wit h low t axat ion and regulat ion. Many offshore
banks are essent ially privat e banks.

Savings banks: in Europe, savings banks t ook t heir root s in t he 19t h or somet imes even in t he
18t h cent ury. Their original object ive was t o provide easily accessible savings product s t o all
st rat a of t he populat ion. In some count ries, savings banks were creat ed on public init iat ive; in
ot hers, socially commit t ed individuals creat ed foundat ions t o put in place t he necessary
infrast ruct ure. Nowadays, European savings banks have kept t heir focus on ret ail banking:
payment s, savings product s, credit s and insurances for individuals or small and medium-sized
ent erprises. Apart from t his ret ail focus, t hey also differ from commercial banks by t heir
 broadly decent ralized dist ribut ion net work, providing local and regional out reach – and by t heir
socially responsible approach t o business and societ y.

Building societ ies and Landesbanks: inst it ut ions t hat conduct ret ail banking.

Et hical banks: banks t hat priorit ize t he t ransparency of all operat ions and make only what t hey
consider t o be socially responsible invest ment s.

A direct or int ernet -only bank is a banking operat ion wit hout any physical bank branches.
Transact ions are usually accomplished using ATMs and elect ronic t ransfers and direct
deposit s t hrough an online int erface.

Types of investment banks

Invest ment banks "underwrit e" (guarant ee t he sale of) st ock and bond issues, t rade for t heir
own account s, make market s, provide invest ment management , and advise corporat ions on
capit al market act ivit ies such as mergers and acquisit ions.

Merchant banks were t radit ionally banks which engaged in t rade finance. The modern
definit ion, however, refers t o banks which provide capit al t o firms in t he form of shares rat her
t han loans. Unlike vent ure caps, t hey t end not t o invest in new companies.

Combination banks

A Banco do Brasil office in São Paulo, Brazil, the bank is the largest financial institution in Brazil and Latin America.
 Universal banks, more commonly known as financial services companies, engage in several of
t hese act ivit ies. These big banks are very diversified groups t hat , among ot her services, also
dist ribut e insurance – hence t he t erm bancassurance, a port mant eau word combining "banque
or bank" and "assurance", signifying t hat bot h banking and insurance are provided by t he same
corporat e ent it y.

Other types of banks

Cent ral banks are normally government -owned and charged wit h quasi-regulat ory
responsibilit ies, such as supervising commercial banks, or cont rolling t he cash int erest rat e.
They generally provide liquidit y t o t he banking syst em and act as t he lender of last resort in
event of a crisis.

Islamic banks adhere t o t he concept s of Islamic law. This form of banking revolves around
several well-est ablished principles based on Islamic laws. All banking act ivit ies must avoid
int erest , a concept t hat is forbidden in Islam. Inst ead, t he bank earns profit (markup) and fees
on t he financing facilit ies t hat it ext ends t o cust omers.

Challenges within the banking industry

United States

Citibank, The People's Trust Company Building, Brooklyn, New York City.

The Unit ed St at es banking indust ry is one of t he most heavily regulat ed and guarded in t he
world,[35] wit h mult iple specialized and focused regulat ors. All banks wit h FDIC-insured deposit s
have t he Federal Deposit Insurance Corporat ion (FDIC) as a regulat or. However, for soundness
examinat ions (i.e., whet her a bank is operat ing in a sound manner), t he Federal Reserve is t he
primary federal regulat or for Fed-member st at e banks; t he Office of t he Compt roller of t he
Currency (OCC) is t he primary federal regulat or for nat ional banks. St at e non-member banks are
examined by t he st at e agencies as well as t he FDIC.[36]:236 Nat ional banks have one primary
regulat or – t he OCC.

Each regulat ory agency has t heir own set of rules and regulat ions t o which banks and t hrift s
must adhere.
The Federal Financial Inst it ut ions Examinat ion Council (FFIEC) was est ablished in
1979 as a formal int er-agency body empowered t o prescribe uniform principles, st andards, and
report forms for t he federal examinat ion of financial inst it ut ions. Alt hough t he FFIEC has
result ed in a great er degree of regulat ory consist ency bet ween t he agencies, t he rules and
regulat ions are const ant ly changing.

In addit ion t o changing regulat ions, changes in t he indust ry have led t o consolidat ions wit hin t he
Federal Reserve, FDIC, OTS, and OCC. Offices have been closed, supervisory regions have been
merged, st aff levels have been reduced and budget s have been cut . The remaining regulat ors
face an increased burden wit h increased workload and more banks per regulat or. While banks
st ruggle t o keep up wit h t he changes in t he regulat ory environment , regulat ors st ruggle t o
manage t heir workload and effect ively regulat e t heir banks. The impact of t hese changes is t hat
banks are receiving less hands-on assessment by t he regulat ors, less t ime spent wit h each
inst it ut ion, and t he pot ent ial for more problems slipping t hrough t he cracks, pot ent ially result ing
in an overall increase in bank failures across t he Unit ed St at es.

The changing economic environment has a significant impact on banks and t hrift s as t hey
st ruggle t o effect ively manage t heir int erest rat e spread in t he face of low rat es on loans, rat e
compet it ion for deposit s and t he general market changes, indust ry t rends and economic
fluct uat ions. It has been a challenge for banks t o effect ively set t heir growt h st rat egies wit h
t he recent economic market . A rising int erest rat e environment may seem t o help financial
inst it ut ions, but t he effect of t he changes on consumers and businesses is not predict able and
t he challenge remains for banks t o grow and effect ively manage t he spread t o generat e a ret urn
t o t heir shareholders.

The management of t he banks’ asset port folios also remains a challenge in t oday's economic
environment . Loans are a bank's primary asset cat egory and when loan qualit y becomes suspect ,
t he foundat ion of a bank is shaken t o t he core. While always an issue for banks, declining asset
qualit y has become a big problem for financial inst it ut ions.
Safra National Bank, New York

There are several reasons for t his, one of which is t he lax at t it ude some banks have adopt ed
because of t he years of “good t imes.” The pot ent ial for t his is exacerbat ed by t he reduct ion in
t he regulat ory oversight of banks and in some cases dept h of management . Problems are more
likely t o go undet ect ed, result ing in a significant impact on t he bank when t hey are discovered. In
addit ion, banks, like any business, st ruggle t o cut cost s and have consequent ly eliminat ed cert ain
expenses, such as adequat e employee t raining programs.

Banks also face a host of ot her challenges such as ageing ownership groups. Across t he count ry,
many banks’ management t eams and board of direct ors are ageing. Banks also face ongoing
pressure by shareholders, bot h public and privat e, t o achieve earnings and growt h project ions.
Regulat ors place added pressure on banks t o manage t he various cat egories of risk. Banking is
also an ext remely compet it ive indust ry. Compet ing in t he financial services indust ry has become
t ougher wit h t he ent rance of such players as insurance agencies, credit unions, cheque cashing
services, credit card companies, et c.

As a react ion, banks have developed t heir act ivit ies in financial inst rument s, t hrough financial
market operat ions such as brokerage and have become big players in such act ivit ies.

Anot her major challenge is t he ageing infrast ruct ure, also called legacy IT. Backend syst ems
were built decades ago and are incompat ible t o new applicat ions. Fixing bugs and creat ing
int erfaces cost s huge sums, as knowledgeable programmers become scarce.[37]
Loan activities of banks

To be able t o provide home buyers and builders wit h t he funds needed, banks must compet e for
deposit s. The phenomenon of disint ermediat ion had t o dollars moving from savings account s and
int o direct market inst rument s such as U.S. Depart ment of Treasury obligat ions, agency
securit ies, and corporat e debt . One of t he great est fact ors in recent years in t he movement of
deposit s was t he t remendous growt h of money market funds whose higher int erest rat es
at t ract ed consumer deposit s.[38]

To compet e for deposit s, US savings inst it ut ions offer many different t ypes of plans:[38]

Passbook or ordinary deposit account s  – permit any amount t o be added t o or wit hdrawn
from t he account at any t ime.

NOW and Super NOW account s  – funct ion like checking account s but earn int erest . A
minimum balance may be required on Super NOW account s.

Money market account s  – carry a mont hly limit of preaut horized t ransfers t o ot her account s
or persons and may require a minimum or average balance.

Cert ificat e account s  – subject t o loss of some or all int erest on wit hdrawals before mat urit y.

Not ice account s  – t he equivalent of cert ificat e account s wit h an indefinit e t erm. Savers
agree t o not ify t he inst it ut ion a specified t ime before wit hdrawal.

Individual ret irement account s (IRAs) and Keogh plans  – a form of ret irement savings in which
t he funds deposit ed and int erest earned are exempt from income t ax unt il aft er wit hdrawal.

Checking account s  – offered by some inst it ut ions under definit e rest rict ions.

All wit hdrawals and deposit s are complet ely t he sole decision and responsibilit y of t he
account owner unless t he parent or guardian is required t o do ot herwise for legal reasons.

Club account s and ot her savings account s  – designed t o help people save regularly t o meet
cert ain goals.

Types of accounts
Suburban bank branch

Bank st at ement s are account ing records produced by banks under t he various account ing
st andards of t he world. Under GAAP t here are t wo kinds of account s: debit and credit . Credit
account s are Revenue, Equit y and Liabilit ies. Debit Account s are Asset s and Expenses. The bank
credit s a credit account t o increase it s balance, and debit s a credit account t o decrease it s
balance.[39]

The cust omer debit s his or her savings/bank (asset ) account in his ledger when making a deposit
(and t he account is normally in debit ), while t he cust omer credit s a credit card (liabilit y) account
in his ledger every t ime he spends money (and t he account is normally in credit ). When t he
cust omer reads his bank st at ement , t he st at ement will show a credit t o t he account for
deposit s, and debit s for wit hdrawals of funds. The cust omer wit h a posit ive balance will see t his
balance reflect ed as a credit balance on t he bank st at ement . If t he cust omer is overdrawn, he
will have a negat ive balance, reflect ed as a debit balance on t he bank st at ement .

Brokered deposits

One source of deposit s for banks is brokers who deposit large sums of money on behalf of
invest ors t hrough t rust corporat ions. This money will generally go t o t he banks which offer t he
most favorable t erms, oft en bet t er t han t hose offered local deposit ors. It is possible for a bank
t o engage in business wit h no local deposit s at all, all funds being brokered deposit s. Accept ing a
significant quant it y of such deposit s, or "hot money" as it is somet imes called, put s a bank in a
difficult and somet imes risky posit ion, as t he funds must be lent or invest ed in a way t hat yields a
ret urn sufficient t o pay t he high int erest being paid on t he brokered deposit s. This may result in
risky decisions and even in event ual failure of t he bank. Banks which failed during 2008 and 2009
in t he Unit ed St at es during t he global financial crisis had, on average, four t imes more brokered
deposit s as a percent of t heir deposit s t han t he average bank. Such deposit s, combined wit h
risky real est at e invest ment s, fact ored int o t he savings and loan crisis of t he 1980s. Regulat ion
of brokered deposit s is opposed by banks on t he grounds t hat t he pract ice can be a source of
ext ernal funding t o growing communit ies wit h insufficient local deposit s.[40] There are different
t ypes of account s: saving, recurring and current account s.

Custodial accounts

Cust odial account s are account s in which asset s are held for a t hird part y. For example,
businesses t hat accept cust ody of funds for client s prior t o t heir conversion, ret urn or t ransfer
may have a cust odial account at a bank for t hese purposes.

Globalization in the banking industry

In modern t ime t here has been huge reduct ions t o t he barriers of global compet it ion in t he
banking indust ry. Increases in t elecommunicat ions and ot her financial t echnologies, such as
Bloomberg, have allowed banks t o ext end t heir reach all over t he world, since t hey no longer
have t o be near cust omers t o manage bot h t heir finances and t heir risk. The growt h in cross-
border act ivit ies has also increased t he demand for banks t hat can provide various services
across borders t o different nat ionalit ies.

However, despit e t hese reduct ions in barriers and growt h in cross-border act ivit ies, t he banking
indust ry is nowhere near as globalized as some ot her indust ries. In t he US, for inst ance, very few
banks even worry about t he Riegle–Neal Act , which promot es more efficient int erst at e banking.
In t he vast majorit y of nat ions around t he globe t he market share for foreign owned banks is
current ly less t han a t ent h of all market shares for banks in a part icular nat ion.
One reason t he
banking indust ry has not been fully globalized is t hat it is more convenient t o have local banks
provide loans t o small business and individuals. On t he ot her hand, for large corporat ions, it is not
as import ant in what nat ion t he bank is in, since t he corporat ion's financial informat ion is available
around t he globe.[41]

See also
Types of inst it ut ions:

Bad bank

Bankers' bank

Building societ y

Cooperat ive bank

Credit union

Et hical bank

Indust rial loan company

Islamic banking

Mort gage bank

Mut ual savings bank

Offshore bank

Person-t o-person lending

Public bank

Savings and loan associat ion

Savings bank

Sparebank

Terms and concept s:

Banking agent

Bank regulat ion

Bankers' bonuses

Call report

Cheque

Elect ronic funds t ransfer

Fact oring (finance)

 Finance

Fract ional-reserve banking

Full-reserve banking

Hedge fund

IBAN

Int ernet banking

Invest ment banking

Mobile banking

Money

Money laundering

Terms and concept s:

Narrow banking

Overdraft

Overdraft prot ect ion

Piggy bank

Pigmy Deposit Scheme

Privat e banking

St ockbroker

Subst it ut e check

SWIFT

Tax haven

Vent ure capit al

Wealt h management

Wire t ransfer

Crime:
 Bank fraud

Bank robbery

Cheque fraud

Mort gage fraud

Cyber Crime

List s:

List of largest banks

List of account ing t opics

List of bank mergers in Unit ed St at es

List of banks

List of economics t opics

List of finance t opics

List of largest U.S. bank failures

List of oldest banks

List of st ock exchanges

Banking by count ry

Banking in Aust ralia

Banking in Aust ria

Banking in Bangladesh

Banking in Canada

Banking in China

Banking in France

Banking in Germany

Banking in Greece

Banking in Hong Kong

 Banking in Iran

Banking in India

Banking in Israel

Banking in It aly

Banking in Pakist an

Banking in Russia

Banking in Singapore

Banking in Swit zerland

Banking in Tunisia

Banking in t he Unit ed Kingdom

Banking in t he Unit ed St at es

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credit institution, but is not a credit union, friendly society or a building society; or

(2) an EEA bank."

2. Hoggson, N. F. (1926) Banking Through the Ages, New York, Dodd, Mead & Company.

3. Goldthwaite, R. A. (1995) Banks, Places and Entrepreneurs in Renaissance Florence, Aldershot,

Hampshire, Great Britain, Variorum

4. Macesich, George (30 June 2000). "Central Banking: The Early Years: Other Early Banks" (https://book
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 5. Compare:
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6. Lord Chancellor Cottenham, Foley v Hill (1848) 2 HLC 28.

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8. Richards. The usual denomination was 50 or 100 pounds, so these notes were not an everyday
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9. Richards, p. 40

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m/financial-news/a-short-history-of-overdrafts/) . eccount money. Archived from the original (http://
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9) . History World. Retrieved 20 August 2020. "The Danish loan [1803] is the first of many such
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The family is soon represented in all the important centres of the continent."
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19. e.g. Tyree's Banking Law in New Zealand, A L Tyree, LexisNexis 2003, p. 70.

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have their foreign counterparts."

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External links

Bank
at Wikipedia's sist er project s

Definit ions from

Wikt ionary

Media from Wikimedia

Commons

Text s from Wikisource

Guardian Dat ablog – World's Biggest Banks (ht t ps://www.t heguardian.com/news/dat ablog/200
9/mar/25/banking-g20)

Banking, Banks, and Credit Unions (ht t ps://web.archive.org/web/20120111132200/ht t p://ucblibra

ries.colorado.edu/govpubs/us/banking.ht m) from UCB Libraries GovPubs

A Guide to the National Banking System (https://www.occ.gov/static/publications/nbguide.

pdf) (PDF). Office of t he Compt roller of t he Currency (OCC), Washingt on, D.C. Provides an
overview of t he nat ional banking syst em of t he US, it s regulat ion, and t he OCC.
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