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Essay on Bank | Bank Essay for Students and Children in English

February 13, 2024 by Prasanna

Essay on Bank: Banks are financial institutions that provide a loan or save customer’s money. The term ‘Bank’ is derived from the word ‘Banc’ or ‘Banque,’ which means a bench upon which the ancient day financiers would display their coins or transact their business in the market space.

Banks are an elemental part of society. Banks are located in different parts of the country and deal directly with the general public. They provide multiple services on customer-based requirements and provide lockers, ATM Services, money transfer, loans for houses and businesses, and several other monetary services.

Thus, Bank (s)provides primary monetary services that boost the economic development of the country.

You can read more Essay Writing about articles, events, people, sports, technology many more.

Long and Short Essay on Bank for Students and Kids in English

We have mentioned two essays- a 500 words Long Essay and a 200 words Short Essay. The extended essay on Bank consists of 400-500 words. The Long essay provides a framework that helps students with their competitive exams and assignments. The short essay on Bank is written for 200 words and is suitable for children and kids with their classwork.

Long Essay On Bank 500 Words in English

Given below is an extended essay on Bank for aspirants of competitive exam and students belonging to classes 6,7,8,9, and 10. The Bank essay helps the students with their class assignments, comprehension tasks, and even for competitive examinations.

A bank is a licensed monetary institution to make loans and receive or deposit money. It provides financial services such as safe deposit boxes, wealth management, and currency exchange.

The inception of a Bank/Banking system in India goes back to the Vedic civilization. Loans were given to those in need and were then known to be the name ‘rnalekhya or rnapatra.’ As time evolved, Big merchants and business people started bidding interests on loans to farmers and small traders and the unpayable assets were confiscated.

The first Bank established in India was the Bank of Hindustan at Calcutta in the year 1770. This was followed the start of other banks such as Bank of Calcutta, Bank of Madras, and Bank of Bombay in the early 19th century.

Classifications of a Bank

Commercial Bank: Theses may be government-owned or a private bank. There are 20 major commercial banks
Industrial or Investment Banks: These banks provide long-term loans or other features to any industrial concerns.
Exchange Banks: These banks deal with the foreign exchange of currencies. A few Indian commercial banks also handle foreign currency exchange deals.
Co-operative Banks: These are set-up regarding small-scale industries and farmer’s concern. Co-operative banks are subcategorized as Central Co-operative Banks and State Co-operative Banks.
Land Mortage Banks: These banks provide loan-term debentures to agriculturalists and farmers.
Central banks: This Bank occupies the central position in the country and is the financial market’s statutory body.
Saving Banks : these banks promote savings scheme among the middle-class families. However, the savings accounts are monitored by the commercial banks in India.
Indigenous banks: These lend money and finance the country’s internal trade.
Regional Rural Banks: Theses banks are set-up by the central government for the economic development of rural regions. The commercial banks sponsor these banks.

Functions of a Bank

The essential function of a bank is to receive deposits. Theses deposits are received as fixed deposits- which have a limited time frame, current deposits- require no interests and are framed mainly for business people and savings bank deposits to encourage savings with a 5 percent interest rate.

Another primary function of a bank is to lend money through cash credits or loans, overdrafts, or discounting bills. The banks usually charge a higher interest rate while giving money.

The banks also perform various agency functions that provide services such as remitting funds, sell and purchase shares and bonds, collect and paycheck bills, subscriptions, rents, etc.

Importance of a Bank

A bank helps people cultivate the habit of saving and provides safe custody. It collects bills, drafts, cheques, and grants credit facilities and loans to people. It facilitates making payments and secures the overdrafts and loans.

A bank also provides safe custody of valuables such as deeds, ornaments, documents, jewels, etc. It also sells and purchases stocks, shares, etc. A bank is essential as it provides Credit information and a Letter of Credit and acts as representatives and makes correspondence.

Top 10 Indian Banks

Bank of Baroda
Punjab National Bank
Canara Bank
Bank of India

Thus, a bank forms an integral part of society and is a critical factor that boosts economic development in the country.

Short Essay on Bank 200 Words in English

The 200 words short essay mentioned below is suitable for kids and children up to 6th standard. The essay is written to guide the children with their school works-assignments and comprehension exercises.

A bank is a financial institution that provides funds based on credits to firms or individuals and accepts money deposits from the general public. A bank offers various functions such as transfer of funds, issuance of drafts, locker facility, portfolio management, etc. The first established Indian Bank is the Bank of Hindustan, located at Calcutta in 1770.

There are different types of functioning banks, such as Retail banks, national banks, investment banks, savings banks, co-operative banks, commercial banks, land mortgage banks, exchange banks, industrial banks, and consumer banks.

A bank provides multiple functions such as eases trade and commerce, promote agricultural sectors, ensure safe deposits, aids industrial developments, provides employment, and encourages saving habits.

A bank plays a vital role in the economic development of a country as it removes the deficiency of capital and encourages investment and savings. It resembles all the savings of society and makes it available for investment.

There are a total of 34 functioning banks in India; out of 12 banks are public sector banks, and the remaining 22 banks are private sector banks. The Top ten banks include

In short, Indian banks play an essential role in boosting the economic development of a country. It mobilizes the financial resources and flow of money in a society.

10 Lines on Bank Essay

Banks are government certified financial institutions that lend or receive money deposits.
The Bank of Hindustan was the first Bank to be established in 1770 at Calcutta, while the State Bank of India, established in 1906, is the oldest functioning Bank.
Banks provide long and short term loans to individuals and corporate firms.
The Reserve Bank of India is a central monetary that controls and regulates the entire banking system- circulation of currency and credit.
India comprises 34 functioning banks, out of which 12 are public sector banks, and the remaining 22 are private sector banks.
There are multiple divisions in banks. However, the two primary classifications of a bank are Investment Banks and Commercial/Retail Banks.
The primary purpose of a bank is to provide consumers with ease of financial issues.
A bank plays a significant role in the economic development of a country. It aids in the removal of the deficiency of capital and encourages investment and savings.
A bank also performs other services such as remitting funds, sell and purchase shares and bonds, collect and paycheck bills, subscriptions, rents, etc.
The Bank acts as the lifeline of any economy and is significant for the development of a country.

FAQ’ On Bank Essay

Question 1. State the significant functions of a bank?

Answer: A bank’s primary function includes cash credits, overdrafts, discounting bills, granting loans, and accepting deposits. While their secondary duties include providing consumer finance, safe deposit for valuables, issues letter of credit, educational loans, etc.

Question 2. Which is the first Indian Bank?

Answer: The first Bank to be established in India was the Bank of Hindustan in 1770 at Calcutta.

Question 3. State the various types of banks?

Answer: A bank is classified as national banks, investment banks, retail banks, savings banks, industrial banks, co-operative banks, commercial banks, exchange banks, consumer banks, and land mortgage banks.

Question 4. Name the top ten Indian banks?

Answer: HDFC Bank, Axis Bank, IDFC Bank, SBI, Bank of Baroda, Punjab National Bank, ICICI Bank, Canara Bank, IDBI Bank, and Bank of India.

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Essay On Bank

Essay on Bank

500+ words essay on bank.

Banks are an integral part of the modern economy. They play a major role in the economic growth and development of a country. The idea of banking evolved with the idea of money. In India, public sector banks (PSBs) have been working to provide banking services in urban and rural areas since 1970. These public sector banks account for nearly 70% of banking activity in India. With the help of this essay on banks, students will get to know the functions performed by banks and their importance for individuals and the country. To help students in improving their essay-writing skills, we have also compiled a list of CBSE Essays on different topics. By practising these essays, they can boost their writing skills and also score good marks on the English exam.

Meaning of Bank

Banks are mainly linked to depositing and lending money. In Indian society, moneylenders used to give money to people in ancient times. They charged a high rate of interest to people as there were no banks or banking systems available at that time. But, with the change in time, the banking system was introduced in India. Now, we have public sector banks and private banks.

A bank is a financial institution that deals with deposits, withdrawals and other related banking services. Bank receives money from those who want to save in the form of deposits, and it lends money to those who need it. A bank is a financial institution that works as an intermediary to accept deposits and channels those deposits into various lending activities. It does so through loans or capital markets. A bank establishes the connection between the customers who have capital surpluses and those with capital deficits. In India, all banks operate under the guidelines of the Reserve Bank of India, which is known as the banker’s bank.

Functions of Bank

Banking is the lifeline of the modern economy. It has played a very important role in the economic development of all the nations of the world. We can not think of modern commerce without banking. Banking is a business which seeks profits like any other business. The banking business mainly constitutes borrowing and lending as their basic functions. Now, banks are providing many other services to people, such as net banking, online shopping, mobile banking, granting loans and advances, short-term credit, pension payments, acting as a dealer in foreign currency etc. A common person can safely deposit their money in the banks.

How Important are Banks for Development?

Banks are the most important financial pillars. They play a vital role in the economic development of a country. The financing requirements of industries, trades, agriculture and other business are met with the help of banks. Therefore, if the banking system of a country becomes strong, then the development of the country will also be at a faster rate. In today’s economy, banks are not only dealing with money, but they are also contributing to the development of the nation. They play a crucial role in the disbursement of credit and the mobilisation of deposits to various sectors of the economy. Banks also represent the economic health of the country. The strength of a nation’s economy depends on the strength of the financial system, which depends on the banking system.

In India, banks play a crucial role in the social and economic growth of the country after independence. The banking sector in India accounts for more than half the assets of the financial sector. The Indian banks have shown much growth after the implementation of financial sector reforms.

Banks are the backbone of any country’s economy. They are responsible for running the economy and controlling the price of the markets. They perform various important functions. However, there are default NPAs, cases of corruption and security threat-related issues, but these can be resolved by implementing strict laws and rules by the government.

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Essay on Bank in English for Children and Students

Table of Contents

Banks are financial institutions that deal in monetary transactions. Banks form an integral part of any society. There are numerous banks located in different parts of our country. While earlier there were limited number of banks with a few branches in big cities and towns in India, a number of new banks have opened in the last few decades with branches in every nook and corner of the country. Banks provide a lot of services based on the customer’s requirements. They provide locker facilities, safe deposits, ATM Services, Fixed Deposits, money transfer, loan for business and houses and several other monetary services to their customers.

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Long and Short Essay on Bank in English

Here are essay on Bank in English of varied lengths to help you with the topic whenever you required.

After going through these Bank essay, your knowledge about banks, their functioning and their usefulness will enhance and you will emerge as a knowledgeable person.

These essays will prove useful in your school or college assignments, especially for students of commerce or banking.

You can select any bank essay of your choice given below:

Bank Essay 1 (200 words)

The banking system that involves accepting deposits and lending money initiated centuries back in various parts of the world. The system improvised over the time and the banks these days offer various other facilities in addition to the basic depositing and lending of money.

People are encouraged to keep their money in the banks because it is a safe and secure way to store the money. The money stored in the bank in the form of fixed deposits and recurring deposits also fetches a good amount of interest. In addition to money, one can also keep jewellery and important papers in the bank lockers.

Providing loans, which is another primary function of the banks, is also beneficial for individuals and businesses in many ways. Salaried people can build their assets such as property, car, etc easily with the help of loans from the bank. Businessmen can expand their businesses with this facility. A number of other services are also provided to the businessmen to ease their financial transactions and aid in the growth of their business.

Online Banking has further enhanced the process of banking. Various banking services such as checking balance, transferring amount, applying for loan are now provided on the bank’s website. All the customers require doing is opting for internet banking service.

Bank Essay 2 (300 words)

Introduction

Banking system has been in place since centuries. The system has been prevalent in India as well as other parts of the world. Only the services provided and the functions carried out have enhanced over the time.

History of Banks

Banking service began back in the 14 th century in some parts of Renaissance Italy. It was initiated on the lines of the concept of lending and borrowing that took place among people since the ancient era. In the ancient times, the merchants gave grain loans to the traders and farmers. This was called the barter system. Over the time the system evolved to accepting deposits and lending money.

The Fuggers, the Medicis, the Berenbergs, the Rothschilds are among some of the banking dynasties that are known to play a central role in the history of banking. They dominated this sector for centuries. Modern banking services such as issuance of banknotes and reserve banking started in the 17 th century. Bank of England and The Royal Bank of Scotland are some of the oldest banks in the world.

History of Banks in India

In India, the banking system dates back to the Vedic civilization. Loans were given to the needy in that era too only the nitty-gritty’s involved in the same were different. Loans deeds in that period were known by the name rnalekhya or rnapatra.

Big businessmen and landlords gave money to the small traders and farmers on interest in the earlier times. This culture is still prevalent in some villages in the country. The lands or other valuable assets of those who were unable to pay the amount were confiscated just as the banks do these days.

The first bank established in India was the Bank of Hindustan. It was opened in the year 1770 in Calcutta. Bank of Bombay, Bank of Calcutta and Bank of Madras were set up later in the early 19 th century.

There are numerous types of banks in every country to cater to the needs of different customers. They provide various services and aid in the growth of the country’s economy.

Bank Essay 3 (400 words)

A bank is an institution that accepts money deposits from the public and provides funds on credit to individuals as well as firms. These are the primary functions of a bank but not the only functions. They provide various other services to its customers such as locker facility, transfer of funds, issuance of drafts and portfolio management to name a few.

Importance of Banks

Banks are important for the individuals as well as the development of the country’s economy. Here is why these institutions are of importance:

Provides Safety and Security

Money kept at home is not safe. It is prone to burglary. When you keep your money in the bank, it is the bank’s responsibility to safeguard it. You do not have to worry about its security.

Encourages Saving Habits

Banks offer various schemes from time to time to encourage saving habits in people. The money put in the bank is not only saved but also grows. You have the option of withdrawing it any time you want.

Eases Trade and Commerce

Banks promote trade within the country by providing loans and advances to the traders. It also eases the process of trading between different countries. They provide easy money transaction options to smoothen the process. It is easy to send and receive funds from anywhere with the advancement in the banking system.

Promotes Agricultural Sector

Agricultural sector is an important part of the economy. There are special banks that provide loans to the farmers at low interest to promote agricultural activities. Banks thus aid in promoting the agricultural sector.

Aids in Development of Industries

Banks accept deposits from individuals and businesses and provide loads to the industries. They thus aid in the development of various industries in this way. The loan can be repaid in easy instalments.

Provides Employment Opportunities

Banks provide loans for the growth and development of the agricultural and industrial sectors. As these sectors expand, a number of employment opportunities are created for the public.

Banks are an important part of any country. The modern banking services have helped in easing the process of trade, development of industries and other activities that help in the development of the country’s economy. Banks and other financial institutions that promote the growth of businesses and safeguard the money and other valuable assets of individuals are certainly play an integral role in the development of a country’s economy.

Bank Essay 4 (500 words)

Banks play an important role in maintaining financial stability in the country. They offer numerous services to help you manage your finances better. These institutions thus form a vital part of any society.

Functions of Banks

The functions of banks have broadly been classified into two categories. These are the primary functions and the secondary functions. Here is a look at these in detail:

Primary Functions

Primary functions are the main functions of the banks. These include accepting deposits and providing loans. Here is a brief look at these functions:

Accepting Deposits

These deposits are basically of four different types:

Saving Deposits: These deposits encourage public to save money. The money can easily be withdrawn and deposited in the saving account without much restriction. The interest rate here is however quite low.

Current Deposits: This account is especially for the businessmen. These accounts offer facilities such as overdraft that are beneficial for the businesses. No interest is paid in this account.

Fixed Deposits: In a fixed deposit a considerable big amount is deposited in the account for a fixed period of time. The rate of interest is high in such deposits.

Recurring Deposits: A certain amount is deposited at regular intervals in such an account. The rate of interest is high. However, the amount cannot be withdrawn before a certain period.

Providing Loans

Here are the types of loans and advances offered by the banks:

Loans: Loans are offered for both short term and long term period. The rate of interest charged on the same varies based on the type and duration of loan. It can be repaid in instalments.

Cash Credits: The customers have the facility to take cash credit up to a certain amount which is fixed in advanced. A separate cash credit account needs to be maintained for this.

Overdraft: This facility is for businessmen. It is thus provided to the current account holders. They do not require maintaining a separate account to avail this facility.

Secondary Functions

Secondary functions, also known as non-banking functions, are of two types. These are agency functions and general utility functions. Here is a brief look at both these types of functions:

Agency Functions

The bank also acts as an agent for its customers. A number of agency functions are performed by this institution. These include collection of cheques, periodic payments, portfolio management, periodic collections and transfer of funds. Banks also act as executors, administrators, advisors and trustees for their customers. They help their customers deal with other institutions.

General Utility Functions

Banks also perform general utility functions that include providing locker facility, underwriting of shares, dealing in foreign exchange, issuance of drafts and letter of credits, drafting project reports, undertaking social welfare programmes such as public welfare campaigns and adult literacy programmes.

Discounting of bill of exchange is another service provided under this.

While initially the functions of banks only included accepting deposits and providing loans; they have started providing various other services now. All these facilities are aimed at helping the customers with their finances.

Bank Essay 5 (600 words)

Banks are financial institutions that lend money and accept deposits from general public. Banks maintain the flow of money in the country and are important for its economic growth. There are different types of banks that offer different kinds of services to individuals as well as businesses.

Types of Banks

Here are the various types of banks and their functions:

National Banks

Also known by the name, Central or Federal bank, these banks manage the financial system of the government. These non-profit making institutes serve as bankers to the other banks. There is one Central bank in every country. Some of the functions of National banks include supervising foreign exchange, controlling the country’s currency and issuance of paper currency. They do not deal with the general public.

Retail Banks

These are the most common types of banks. These are mainly set up to focus on the requirements of the general public. They open your savings account, provide credit cards, give loans and provide locker facility among other services.

Saving Banks

These are especially established to inculcate the habit of saving money among the people. The deposits from the customers are turned into securities and bonds in these banks. These were set up way back in the 18 th century in European countries. Besides, accepting deposits from individuals these banks offer various other services too.

Commercial Banks

The main aim of these banks is to aid the business class. They provide loans to the businessmen and also provide other services that are useful for the business men. Some of these services include bill of exchange, overdraft and cheque collection.

Investment Banks

These banks are also set up to aid the businesses. These banks help the businessmen establish a foothold in the financial markets. Investment banks facilitate those businessmen who require selling debt to the investors or want to go public with their business.

Land Mortgage Banks

Also known as agricultural banks or Land Development banks, these are mainly set up to aid the agricultural sector by financing it. These banks also play an important part in land development. The reason why this special category of banks has come into being is that there is a lot of risk in financing the agricultural sector and the commercial banks that support other businesses are not ready to take such risk.

Co-operative Banks

Co-operative banks provide loans to small-scale farmers, small-scale businesses and salaried people. They provide both commercial and retail services to people. These banks are registered under Co-operative Societies Act, 1912.

Consumer Banks

These banks have exclusively been set up to provide loan for purchasing durable consumer goods such as car, washing machine, refrigerator, furniture, etc. These banks give their consumers the leverage to repay loans in easy instalments. These are mostly found in first world countries.

Industrial Banks

Also known by the name Development Banks, these banks are established to aid the industrial sector. These banks accept cash by issuing shares and debentures. They provide long-term loan to the industries to help them expand and develop. Many such banks have been established in the country post independence.

Exchange Banks

These banks are particularly engaged in financing foreign trade. Some of the main functions of these banks include discounting foreign bills, purchasing and selling silver and gold and providing assistance in carrying out export and import trade.

Banks are established to ease the financial issues of the general public as well as the country as a whole. Different types of banks serve different purposes and have been set up to cater to the needs of various classes.

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Essay on the Role of Bank with Outline for Students

Role of bank essay with outline for bcom, b.a, bsc, graduation, class 12, f.a and fsc.

Essay on the Role of Bank with Outline is here for the students of B.A, FSC, Bcom, Class 12, F.A and FSC. This is an important essay for the students of Commerce. In this essay, we will discuss the role of the bank and how effective this business is nowadays. Not only the effectiveness of the bank but also we will discuss its functions and facilities provided by it. You can write the same essay under the topic, Essay on Role of Banking or Essay on Importance of Banks . While preparing this essay students will not only read this but will also go through some parts of knowledge related to the bank to become familiar with it. There are some other important essays also available at This Link .

Outline of Essay on Importance of Banks

Banks have a vital role to play in the economic growth of a country.
Banks produce a congenial environment for healthy economic progress.
Banks also provide many services to their customers.
Banks make essential arrangements for international trade.
Banks help in foreign trade through the collection of bills.
Banks are responsible to provide capital for different sectors.

Commercial banks determine the economics of the stability of a country. They fulfill the financial needs of various sectors. In fact, capital is the basis of commerce and industry. A well-established banking system provides funds to all economic sectors including small businessmen, industrialists, contractors, farmers, cultivators, importers, exporters and traders. The banks act as a middleman to make the commercial transaction possible without any delay. At present hundreds of branches are providing banking services to people of the country. In addition to collecting deposits and making advances, banks offer a wide range of services to their customers. Undertaking stock exchange transactions on behalf of their customers is another activity of the commercial banks. They forward the orders of their customers to stock exchange brokers who try to earn a profit for the stock owners. The commercial banks also provide necessary help to the traders busy in international trade. They help the customers doing export and import trade. Banks also collect and negotiate foreign bills which are the most important instruments of payment in international trade. The banks negotiate documents of the foreign exchange bills for their customers. The documentary credit is surely a better method of payment. Such operations are extremely important for the customers involved in foreign trading. Banks provide the facility of purchase and sale of foreign currencies on the spot.

In any country, capital is considered the backbone of the economy. The shortage of capital means underdevelopment. Commercial banks provide a sufficient amount of capital to the various sectors of the economy. Banks move small savings through the country. The utility of banks is more important in a developing country like Pakistan where there is a shortage of capital. Commercial banks provide loans to agriculture, industrialists, traders and businessmen. As a result, they provide an increase in national output, employment and per capita income.

In the recent past, information technology brought a tremendous revolution in the world. It was quite natural that Banks would take advantage from the latest facilities provide through computers. Banks established their network through computers and linked up all the branches with one another. They started providing the facility of online banking. Moreover, the customers are being provided the ATM facility. Now utility bills can be paid through a mechanism provided by banks. Now it has become quite convenient for the customers to benefit themselves from the latest technology. The manual system of maintaining accounts is replaced by the computer system. In short commercial banks play a very important role in the development of the country.

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Essay on Bank

Long and Short Essay on Bank in English

Here are essay on Bank in English of varied lengths to help you with the topic whenever you required.

After going through these Bank essay, your knowledge about banks, their functioning and their usefulness will enhance and you will emerge as a knowledgeable person.

These essays will prove useful in your school or college assignments, especially for students of commerce or banking.

You can select any bank essay of your choice given below:

Bank Essay 1 (200 words)

Bank Essay 2 (300 words)

Introduction

History of Banks

History of Banks in India

There are numerous types of banks in every country to cater to the needs of different customers. They provide various services and aid in the growth of the country’s economy.

Bank Essay 3 (400 words)

Importance of Banks

Banks are important for the individuals as well as the development of the country’s economy. Here is why these institutions are of importance:

Provides Safety and Security

Money kept at home is not safe. It is prone to burglary. When you keep your money in the bank, it is the bank’s responsibility to safeguard it. You do not have to worry about its security.

Encourages Saving Habits

Eases Trade and Commerce

Promotes Agricultural Sector

Aids in Development of Industries

Provides Employment Opportunities

Banks provide loans for the growth and development of the agricultural and industrial sectors. As these sectors expand, a number of employment opportunities are created for the public.

Bank Essay 4 (500 words)

Functions of Banks

The functions of banks have broadly been classified into two categories. These are the primary functions and the secondary functions. Here is a look at these in detail:

Primary Functions

Primary functions are the main functions of the banks. These include accepting deposits and providing loans. Here is a brief look at these functions:

Accepting Deposits

These deposits are basically of four different types:

Current Deposits: This account is especially for the businessmen. These accounts offer facilities such as overdraft that are beneficial for the businesses. No interest is paid in this account.

Fixed Deposits: In a fixed deposit a considerable big amount is deposited in the account for a fixed period of time. The rate of interest is high in such deposits.

Recurring Deposits: A certain amount is deposited at regular intervals in such an account. The rate of interest is high. However, the amount cannot be withdrawn before a certain period.

Providing Loans

Here are the types of loans and advances offered by the banks:

Loans: Loans are offered for both short term and long term period. The rate of interest charged on the same varies based on the type and duration of loan. It can be repaid in instalments.

Cash Credits: The customers have the facility to take cash credit up to a certain amount which is fixed in advanced. A separate cash credit account needs to be maintained for this.

Overdraft: This facility is for businessmen. It is thus provided to the current account holders. They do not require maintaining a separate account to avail this facility.

Secondary Functions

Secondary functions, also known as non-banking functions, are of two types. These are agency functions and general utility functions. Here is a brief look at both these types of functions:

Agency Functions

General Utility Functions

Discounting of bill of exchange is another service provided under this.

Bank Essay 5 (600 words)

Types of Banks

Here are the various types of banks and their functions:

National Banks

Retail Banks

Saving Banks

Commercial Banks

Investment Banks

Land Mortgage Banks

Co-operative Banks

Consumer Banks

Industrial Banks

Exchange Banks

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Introduction

Principles of banking

Historical development
Commercial banks
Regulation of commercial banks
The principles of central banking

bank , an institution that deals in money and its substitutes and provides other money-related services. In its role as a financial intermediary, a bank accepts deposits and makes loans. It derives a profit from the difference between the costs (including interest payments) of attracting and servicing deposits and the income it receives through interest charged to borrowers or earned through securities. Many banks provide related services such as financial management and products such as mutual funds and credit cards . Some bank liabilities also serve as money—that is, as generally accepted means of payment and exchange.

This article describes the development of banking functions and institutions, the basic principles of modern banking practice, and the structure of a number of important national banking systems. Certain concepts not addressed here that are nonetheless fundamental to banking are treated in the articles accounting and money .

The central practice of banking consists of borrowing and lending. As in other businesses, operations must be based on capital, but banks employ comparatively little of their own capital in relation to the total volume of their transactions. Instead banks use the funds obtained through deposits and, as a precaution, maintain capital and reserve accounts to protect against losses on their loans and investments and to provide for unanticipated cash withdrawals. Genuine banks are distinguished from other kinds of financial intermediaries by the readily transferable or “spendable” nature of at least some of their liabilities (also known as IOUs), which allows those liabilities to serve as means of exchange—that is, as money.

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Types of banks

The principal types of banks in the modern industrial world are commercial banks , which are typically private-sector profit-oriented firms, and central banks , which are public-sector institutions. Commercial banks accept deposits from the general public and make various kinds of loans (including commercial, consumer, and real-estate loans) to individuals and businesses and, in some instances, to governments. Central banks, in contrast, deal mainly with their sponsoring national governments, with commercial banks, and with each other. Besides accepting deposits from and extending credit to these clients, central banks also issue paper currency and are responsible for regulating commercial banks and national money stocks.

The term commercial bank covers institutions ranging from small neighbourhood banks to huge metropolitan institutions or multinational organizations with hundreds of branches. Although U.S. banking regulations limited the development of nationwide bank chains through most of the 20th century, legislation in 1994 easing these limitations led American commercial banks to organize along the lines of their European counterparts, which typically operated offices and bank branches in many regions.

In the United States a distinction exists between commercial banks and so-called thrift institutions, which include savings and loan associations (S&Ls), credit unions , and savings banks . Like commercial banks, thrift institutions accept deposits and fund loans, but unlike commercial banks, thrifts have traditionally focused on residential mortgage lending rather than commercial lending. The growth of a separate thrift industry in the United States was largely fostered by regulations unique to that country; these banks therefore lack a counterpart elsewhere in the world. Moreover, their influence has waned: the pervasive deregulation of American commercial banks, which originated in the wake of S&L failures during the late 1980s, weakened the competitiveness of such banks and left the future of the U.S. thrift industry in doubt.

While these and other institutions are often called banks, they do not perform all the banking functions described above and are best classified as financial intermediaries. Institutions that fall into this category include finance companies, savings banks , investment banks (which deal primarily with large business clients and are mainly concerned with underwriting and distributing new issues of corporate bonds and equity shares), trust companies , finance companies (which specialize in making risky loans and do not accept deposits), insurance companies, mutual fund companies, and home-loan banks or savings and loan associations. One particular type of commercial bank, the merchant bank (known as an investment bank in the United States), engages in investment banking activities such as advising on mergers and acquisitions. In some countries, including Germany, Switzerland, France, and Italy , so-called universal banks supply both traditional (or “narrow”) commercial banking services and various nonbank financial services such as securities underwriting and insurance. Elsewhere, regulations, long-established custom, or a combination of both have limited the extent to which commercial banks have taken part in the provision of nonbank financial services.

Module: Monetary Policy

Reading: the role of banks, the role of banks.

The late bank robber named Willie Sutton was once asked why he robbed banks. He answered: “That’s where the money is.” While this may have been true at one time, from the perspective of modern economists, Sutton is both right and wrong. He is wrong because the overwhelming majority of money in the economy is not in the form of currency sitting in vaults or drawers at banks, waiting for a robber to appear. Most money is in the form of bank accounts, which exist only as electronic records on computers. From a broader perspective, however, the bank robber was more right than he may have known. Banking is intimately interconnected with money and consequently, with the broader economy.

Banks make it far easier for a complex economy to carry out the extraordinary range of transactions that occur in goods, labor, and financial capital markets. Imagine for a moment what the economy would be like if all payments had to be made in cash. When shopping for a large purchase or going on vacation you might need to carry hundreds of dollars in a pocket or purse. Even small businesses would need stockpiles of cash to pay workers and to purchase supplies. A bank allows people and businesses to store this money in either a checking account or savings account, for example, and then withdraw this money as needed through the use of a direct withdrawal, writing a check, or using a debit card.

Banks are a critical intermediary in what is called the payment system , which helps an economy exchange goods and services for money or other financial assets. Also, those with extra money that they would like to save can store their money in a bank rather than look for an individual that is willing to borrow it from them and then repay them at a later date. Those who want to borrow money can go directly to a bank rather than trying to find someone to lend them cash. Transaction costs are the costs associated with finding a lender or a borrower for this money. Thus, banks lower transactions costs and act as financial intermediaries—they bring savers and borrowers together. Along with making transactions much safer and easier, banks also play a key role in the creation of money.

Banks as Financial Intermediaries

An “intermediary” is one who stands between two other parties. Banks are a financial intermediary —that is, an institution that operates between a saver who deposits money in a bank and a borrower who receives a loan from that bank. Financial intermediaries include other institutions in the financial market such as insurance companies and pension funds, but they will not be included in this discussion because they are not considered to be depository institutions , which are institutions that accept money deposits and then use these to make loans. All the funds deposited are mingled in one big pool, which is then loaned out. Figure 13.4 illustrates the position of banks as financial intermediaries, with deposits flowing into a bank and loans flowing out. Of course, when banks make loans to firms, the banks will try to funnel financial capital to healthy businesses that have good prospects for repaying the loans, not to firms that are suffering losses and may be unable to repay.

The illustration shows the circular transactions between savers, banks, and borrowers. Savers give deposits to banks, and the bank provides them with withdrawals and interest payments. Borrowers give repayment of loans and interest payments to banks and the banks provide them with loans.

Figure 13.4. Banks as Financial Intermediaries Banks act as financial intermediaries because they stand between savers and borrowers. Savers place deposits with banks, and then receive interest payments and withdraw money. Borrowers receive loans from banks and repay the loans with interest. In turn, banks return money to savers in the form of withdrawals, which also include interest payments from banks to savers.

HOW ARE BANKS, SAVINGS AND LOANS, AND CREDIT UNIONS RELATED?

Banks have a couple of close cousins: savings institutions and credit unions. Banks, as explained, receive deposits from individuals and businesses and make loans with the money. Savings institutions are also sometimes called “savings and loans” or “thrifts.” They also take loans and make deposits. However, from the 1930s until the 1980s, federal law limited how much interest savings institutions were allowed to pay to depositors. They were also required to make most of their loans in the form of housing-related loans, either to homebuyers or to real-estate developers and builders.

A credit union is a nonprofit financial institution that its members own and run. Members of each credit union decide who is eligible to be a member. Usually, potential members would be everyone in a certain community, or groups of employees, or members of a certain organization. The credit union accepts deposits from members and focuses on making loans back to its members. While there are more credit unions than banks and more banks than savings and loans, the total assets of credit unions are growing.

In 2008, there were 7,085 banks. Due to the bank failures of 2007–2009 and bank mergers, there were 5,844 banks in the United States at the end of the third quarter in 2013. According to Bankrate, there were 7,351 credit unions in the United States in 2012 with average assets of $20 million. A day of “Transfer Your Money” took place in 2009 out of general public disgust with big bank bailouts. People were encouraged to transfer their deposits to credit unions. This has grown into the ongoing Move Your Money Project. Consequently, some now hold deposits as large as $50 million. However, as of 2013, the 12 largest banks (0.2%) controlled 69 percent of all banking assets, according to the Dallas Federal Reserve.

A Bank’s Balance Sheet

A balance sheet is an accounting tool that lists assets and liabilities. An asset is something of value that is owned and can be used to produce something. For example, the cash you own can be used to pay your tuition. If you own a home, this is also considered an asset. A liability is a debt or something you owe. Many people borrow money to buy homes. In this case, a home is the asset, but the mortgage is the liability. The net worth is the asset value minus how much is owed (the liability). A bank’s balance sheet operates in much the same way. A bank’s net worth is also referred to as bank capital . A bank has assets such as cash held in its vaults, monies that the bank holds at the Federal Reserve bank (called “reserves”), loans that are made to customers, and bonds.

Figure 13.5 illustrates a hypothetical and simplified balance sheet for the Safe and Secure Bank. Because of the two-column format of the balance sheet, with the T-shape formed by the vertical line down the middle and the horizontal line under “Assets” and “Liabilities,” it is sometimes called a T-account .

The assets on the left side of the T-account are as follows: loans ($5 million), U.S. Government Securities (USGS) ($4 million) and Reserves ($2 million). The assets on the left side of the T-account are Loans ($5 million), U.S. Government Securities (USGS) ($4 million) and Reserves ($2 million). The liabilities + net worth on the right side of the T-account are as follows: deposits ($10 million) and net worth ($1 million). There is nothing in the space across from U.S. Government Securities (USGS).

Figure 13.5. A Balance Sheet for the Safe and Secure Bank

The “T” in a T-account separates the assets of a firm, on the left, from its liabilities, on the right. All firms use T-accounts, though most are much more complex. For a bank, the assets are the financial instruments that either the bank is holding (its reserves) or those instruments where other parties owe money to the bank—like loans made by the bank and U.S. Government Securities, such as U.S. treasury bonds purchased by the bank. Liabilities are what the bank owes to others. Specifically, the bank owes any deposits made in the bank to those who have made them. The net worth of the bank is the total assets minus total liabilities. Net worth is included on the liabilities side to have the T account balance to zero. For a healthy business, net worth will be positive. For a bankrupt firm, net worth will be negative. In either case, on a bank’s T-account, assets will always equal liabilities plus net worth.

When bank customers deposit money into a checking account, savings account, or a certificate of deposit, the bank views these deposits as liabilities. After all, the bank owes these deposits to its customers, when the customers wish to withdraw their money. In the example shown in Figure 13.5, the Safe and Secure Bank holds $10 million in deposits.

Loans are the first category of bank assets shown in Figure 13.5. Say that a family takes out a 30-year mortgage loan to purchase a house, which means that the borrower will repay the loan over the next 30 years. This loan is clearly an asset from the bank’s perspective, because the borrower has a legal obligation to make payments to the bank over time. But in practical terms, how can the value of the mortgage loan that is being paid over 30 years be measured in the present? One way of measuring the value of something—whether a loan or anything else—is by estimating what another party in the market is willing to pay for it. Many banks issue home loans, and charge various handling and processing fees for doing so, but then sell the loans to other banks or financial institutions who collect the loan payments. The market where loans are made to borrowers is called the primary loan market , while the market in which these loans are bought and sold by financial institutions is the secondary loan market.

One key factor that affects what financial institutions are willing to pay for a loan, when they buy it in the secondary loan market, is the perceived riskiness of the loan: that is, given the characteristics of the borrower, such as income level and whether the local economy is performing strongly, what proportion of loans of this type will be repaid? The greater the risk that a loan will not be repaid, the less that any financial institution will pay to acquire the loan. Another key factor is to compare the interest rate charged on the original loan with the current interest rate in the economy. If the original loan made at some point in the past requires the borrower to pay a low interest rate, but current interest rates are relatively high, then a financial institution will pay less to acquire the loan. In contrast, if the original loan requires the borrower to pay a high interest rate, while current interest rates are relatively low, then a financial institution will pay more to acquire the loan. For the Safe and Secure Bank in this example, the total value of its loans if they were sold to other financial institutions in the secondary market is $5 million.

The second category of bank asset is bonds , which are a common mechanism for borrowing, used by the federal and local government, and also private companies, and nonprofit organizations. A bank takes some of the money it has received in deposits and uses the money to buy bonds—typically bonds issued by the U.S. government. Government bonds are low-risk because the government is virtually certain to pay off the bond, albeit at a low rate of interest. These bonds are an asset for banks in the same way that loans are an asset: The bank will receive a stream of payments in the future. In our example, the Safe and Secure Bank holds bonds worth a total value of $4 million.

The final entry under assets is reserves , which is money that the bank keeps on hand, and that is not loaned out or invested in bonds—and thus does not lead to interest payments. The Federal Reserve requires that banks keep a certain percentage of depositors’ money on “reserve,” which means either in their vaults or kept at the Federal Reserve Bank. This is called a reserve requirement. (Monetary Policy and Bank Regulation will explain how the level of these required reserves are one policy tool that governments have to influence bank behavior.) Additionally, banks may also want to keep a certain amount of reserves on hand in excess of what is required. The Safe and Secure Bank is holding $2 million in reserves.

The net worth of a bank is defined as its total assets minus its total liabilities. For the Safe and Secure Bank shown in Figure 13.5, net worth is equal to $1 million; that is, $11 million in assets minus $10 million in liabilities. For a financially healthy bank, the net worth will be positive. If a bank has negative net worth and depositors tried to withdraw their money, the bank would not be able to give all depositors their money.

How Banks Go Bankrupt

A bank that is bankrupt will have a negative net worth, meaning its assets will be worth less than its liabilities. How can this happen? Again, looking at the balance sheet helps to explain.

A well-run bank will assume that a small percentage of borrowers will not repay their loans on time, or at all, and factor these missing payments into its planning. Remember, the calculations of the expenses of banks every year includes a factor for loans that are not repaid, and the value of a bank’s loans on its balance sheet assumes a certain level of riskiness because some loans will not be repaid. Even if a bank expects a certain number of loan defaults, it will suffer if the number of loan defaults is much greater than expected, as can happen during a recession. For example, if the Safe and Secure Bank in Figure 13.5 experienced a wave of unexpected defaults, so that its loans declined in value from $5 million to $3 million, then the assets of the Safe and Secure Bank would decline so that the bank had a negative net worth.

WHAT LED TO THE FINANCIAL CRISIS OF 2008–2009?

Many banks make mortgage loans so that people can buy a home, but then do not keep the loans on their books as an asset. Instead, the bank sells the loan. These loans are “securitized,” which means that they are bundled together into a financial security that is sold to investors. Investors in these mortgage-backed securities receive a rate of return based on the level of payments that people make on all the mortgages that stand behind the security.

Securitization offers certain advantages. If a bank makes most of its loans in a local area, then the bank may be financially vulnerable if the local economy declines, so that many people are unable to make their payments. But if a bank sells its local loans, and then buys a mortgage-backed security based on home loans in many parts of the country, it can avoid being exposed to local financial risks. (In the simple example in the text, banks just own “bonds.” In reality, banks can own a number of financial instruments, as long as these financial investments are safe enough to satisfy the government bank regulators.) From the standpoint of a local homebuyer, securitization offers the benefit that a local bank does not need to have lots of extra funds to make a loan, because the bank is only planning to hold that loan for a short time, before selling the loan so that it can be pooled into a financial security.

But securitization also offers one potentially large disadvantage. If a bank is going to hold a mortgage loan as an asset, the bank has an incentive to scrutinize the borrower carefully to ensure that the loan is likely to be repaid. However, a bank that is going to sell the loan may be less careful in making the loan in the first place. The bank will be more willing to make what are called “subprime loans,” which are loans that have characteristics like low or zero down-payment, little scrutiny of whether the borrower has a reliable income, and sometimes low payments for the first year or two that will be followed by much higher payments after that. Some subprime loans made in the mid-2000s were later dubbed NINJA loans: loans made even though the borrower had demonstrated No Income, No Job, nor Assets.

These subprime loans were typically sold and turned into financial securities—but with a twist. The idea was that if losses occurred on these mortgage-backed securities, certain investors would agree to take the first, say, 5% of such losses. Other investors would agree to take, say, the next 5% of losses. By this approach, still other investors would not need to take any losses unless these mortgage-backed financial securities lost 25% or 30% or more of their total value. These complex securities, along with other economic factors, encouraged a large expansion of subprime loans in the mid-2000s.

The economic stage was now set for a banking crisis. Banks thought they were buying only ultra-safe securities, because even though the securities were ultimately backed by risky subprime mortgages, the banks only invested in the part of those securities where they were protected from small or moderate levels of losses. But as housing prices fell after 2007, and the deepening recession made it harder for many people to make their mortgage payments, many banks found that their mortgage-backed financial assets could end up being worth much less than they had expected—and so the banks were staring bankruptcy in the face. In the 2008–2011 period, 318 banks failed in the United States.

Loan Defaults

The risk of an unexpectedly high level of loan defaults can be especially difficult for banks because a bank’s liabilities, namely the deposits of its customers, can be withdrawn quickly, but many of the bank’s assets like loans and bonds will only be repaid over years or even decades. This asset-liability time mismatch —a bank’s liabilities can be withdrawn in the short term while its assets are repaid in the long term—can cause severe problems for a bank. For example, imagine a bank that has loaned a substantial amount of money at a certain interest rate, but then sees interest rates rise substantially. The bank can find itself in a precarious situation. If it does not raise the interest rate it pays to depositors, then deposits will flow to other institutions that offer the higher interest rates that are now prevailing. However, if the bank raises the interest rates that it pays to depositors, it may end up in a situation where it is paying a higher interest rate to depositors than it is collecting from those past loans that were made at lower interest rates. Clearly, the bank cannot survive in the long term if it is paying out more in interest to depositors than it is receiving from borrowers.

How can banks protect themselves against an unexpectedly high rate of loan defaults and against the risk of an asset-liability time mismatch? One strategy is for a bank to diversify its loans, which means lending to a variety of customers. For example, suppose a bank specialized in lending to a niche market—say, making a high proportion of its loans to construction companies that build offices in one downtown area. If that one area suffers an unexpected economic downturn, the bank will suffer large losses. However, if a bank loans both to consumers who are buying homes and cars and also to a wide range of firms in many industries and geographic areas, the bank is less exposed to risk. When a bank diversifies its loans, those categories of borrowers who have an unexpectedly large number of defaults will tend to be balanced out, according to random chance, by other borrowers who have an unexpectedly low number of defaults. Thus, diversification of loans can help banks to keep a positive net worth. However, if a widespread recession occurs that touches many industries and geographic areas, diversification will not help.

Along with diversifying their loans, banks have several other strategies to reduce the risk of an unexpectedly large number of loan defaults. For example, banks can sell some of the loans they make in the secondary loan market, as described earlier, and instead hold a greater share of assets in the form of government bonds or reserves. Nevertheless, in a lengthy recession, most banks will see their net worth decline because a higher share of loans will not be repaid in tough economic times.

Self Check: Banks

Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.

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Principles of Macroeconomics Chapter 14.3. Authored by : OpenStax College. Provided by : Rice University. Located at : http://cnx.org/contents/[email protected]:2/Macroeconomics . License : CC BY: Attribution . License Terms : Download for free at http://cnx.org/donate/download/[email protected]/pdf

The Role of Banks in a Modern Economy

First Online: 26 March 2022

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Luis Angeles 2

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Having reached the present day in our historical overview, let us take stock and advance a concise description of the monetary system in place in all modern economies, and of the very special role of banks within it.

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Angeles, L. (2022). The Role of Banks in a Modern Economy. In: Money Matters. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-95516-8_8

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EssayBanyan.com – Collections of Essay for Students of all Class in English

Essay on Bank

All of us have seen a bank and most probably have also visited them. But very few of us know about their types and all of their functions. I have brought these essays containing all the details about a bank and will also help you in wiring your essays.

Short and Long Essays on Bank in English

Essay on Bank for students of class 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11 and class 12 in English in 100, 150, 200, 250, 300, 500 words. Also find short Bank essay 10 lines.

Bank Essay 10 Lines (100 – 150 Words)

1) Banks are the place where people keep their money.

2) Works related to money like loans, transactions, etc are done in banks.

3) In 16 th to 19 th centuries, modern banks came into existence.

4) Banks keep our money, ornaments, important papers, etc safe.

5) The loan facility of banks provides great help to the people.

6) There are many government and private banks in India.

7) In India all the banks are controlled and managed by the Reserve Bank of India (RBI).

8) Banking sector employs a huge population.

9) The first bank of India was the Bank of Calcutta which was later named as State Bank of India.

10) Today internet and technology have made banking easier.

Essay 1 (250 Words) – Bank

Introduction

Banks are the places where we keep our money or do all our money-related work. Either it is getting a loan or something else. This type of place has been addressed as a bank. Although the word has various meanings, all of them mean the same. It is a place where you feel relaxed. When we are in pressure or have to solve some money-related problems we visit a bank.

How Banks Came into Existence

The existence of a bank was seen for the first time in Mesopotamia in 8000 BC. The evidence of bank and temples were seen in this civilization. These banks were not made for lending money because the money came afterword. These banks were made for lending seeds and agricultural stuff. They also used to keep records of trading.

Modern banking came into existence between the 17th to 19th centuries. It is said that Goldsmiths were the first bankers and they use to lend money to people and people use to keep their valuable things near goldsmiths.

The first-ever bank which offered bank noted was the Bank of England. It further developed and today we have well-established banks. We also have ATMs and Credit cards, etc. All these things have made banking easy.

Everything established in this world slowly. Either it was a man or a bank. Things develop and progress as per time. Today things seem so simple to us but they were not so simple and easy years before. A bank is one of the best examples which show development and change in society.

Essay 2 (400 Words) – Bank and Its Importance

Banks are denoted as one of the most important pillars of our economy. People keep their savings in these banks and this helps our nation to progress. Banks help people in various ways; they lend money for different work. Like if you have to buy a house, a car, even a laptop, banks give us money on certain interests and we can easily pay it in different instalments. Apart from this, there are many more uses of a bank.

Importance of Banks

Banks are important and useful in many ways and I have mentioned some of the most important uses below;

Provides Safety

We feel safe when we keep our money in a bank. Not only money people also keep other valuable things in banks like ornaments, important papers, etc. They provide overall security and many of our parents really feel thankful that they can safely keep their money somewhere. It will be not wrong if I say that we sleep peacefully because we have banks to protect us.

Saves our Money

It is a human tendency that if we have money in our pocket, we will definitely spend it. Whereas if they are in a bank, we feel a bit lazy to use and also banks provide interesting profits and sometimes they also double your money in some schemes. This saves our money and we develop a good bank balance.

Develops Employment

There are more than thousands of employees working in a particular bank and there are 34 banks and all of them have more than 3 branches in a particular city. They are also available in villages, really one of the hottest sectors which provide employment. Many of us just love to be a part of a bank because it is a reputed job.

Provides Loan Facilities

It was a time when people use to help each other and families use to do everything for their near and dear ones. But time has changed how people live in nuclear families and they do not have many contacts. People in cities hail from different places as a result they won’t trust. Then who will help you financially, who will trust you and give you some money when you need it. It is a bank which provides loan and helps you financially.

Banks are important parts of our life and have become very necessary for us. We can’t imagine a society without a bank. We can’t trust others, but we can trust a bank and they are our true friends who never ditch us and also protect our money.

Essay 3 (500 – 600 Words) – Types of Banks

We go to school for education, we visit a temple for prayer similarly there is a place where we visit to solve our money-related problems. We save our money, valuable things and also get a loan. A one-stop solution for all types of money related problems. There are many banks in India and some of them are government whereas some of them are private. All of them do the same job and help people in different ways.

The First Bank

Banca Monte dei Paschi di Siena or Berenberg Bank holds the credit of the world’s oldest bank and it was established in the year 1624.

Whereas Bank of Calcutta was the first bank of India established in the year 1806. The name was further changed as Bank of Bengal and also today known as SBI.

Types of Banks:

Banks are of different types some help people in their agricultural problems whereas some help us in our day-to-day problems. I have defined them below;

Central Banks

Banks that are controlled by legislative bodies are central banks. It can be a central bank or reserve bank. We can also state them as the main bank which decides the interest rates as per inflation in the country. They are not only a bank but they also keep an eye on other banks and controls the overall money supply. They also take care of any kind of foreign exchange as well as government bonds. We can call them as the head of all banks.

Commercial Banks

A bank, that is, specially designed for the development of business. They provide loans and some business benefiting offers. They especially support middle to big size business.

Retail Banks

Another name of Retail bank is consumer bank; these banks provide all kinds of facilities to costumers. They won’t lend money to companies or other institutions. People save their money in these banks and they have their easy access to their accounts. They can take or deposit money whenever they want. They provide credit cards, debit cards, ATM facilities, etc to the customer.

Private Banks

Private Banks are also banks having people with personal profits. They provide all facilities like other retail banks just they are not authorized by government agencies. Although the government has an eye on every bank they have very few shares owned by government sectors.

Online Banks

Online banking or internet banking is one of the most convenient forms of banking. They are easily available where ever you want on your fingertips. It is also termed as virtual banking and is a branch of banking. Digital transactions are specially used in this mode of banking and it is most popular these days.

Savings Bank

That bank where we simply deposit our money and they provide us with some interest in our money is saving bank.

Regional Rural Bank

These banks are specially designed for people living in rural areas. They are commercial banks but they are operated at the regional level. They provide all kinds of financial facilities to people living in that area and work for their betterment.

Banks are the basic structures of our economy; they are very helpful in developing a nation. They secure our money and also invest that money in other sectors and generate new income. Really banks are very important and they also help normal people in developing a new business or even buying a house. They have multiple uses and they are available everywhere. We can easily find ATMs and have our money whenever needed.

FAQs: Frequently Asked Questions

Ans . There are 12 public sector banks in India after the merge of smaller banks into larger ones.

Ans . The State Bank of India is the largest public sector bank in India.

Ans . IndusInd Bank, originated in 1994, is the India’s first private bank.

Ans . The ICICI bank is now partnered with PhonePe for UPI transactions.

Ans . The first governor of Reserve Bank of India was Osborne Smith.

Ans . The ICICI bank has recently started the Whatsapp banking services.

Ans . The best bank in India is HDFC bank.

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Essay on the Role of Banks in Economic Development

The role of banks in economic development is to remove the deficiency of capital by stimulating savings and investment.

A sound banking system mobilizes the small and scattered savings of the community, and makes them available for investment in productive enterprises.

In any plan of economic development, capital occupies a position of strategic importance. No economic development of sizable magnitude is possible unless there is an adequate degree of capital formation. A very important characteristic of an under-developed economy is deficiency of capital which is the result of insufficient savings made by the community. Backward economies hardly save 5% of the national income, whereas they should save and invest at least 15%.

In 1950, Colin Clark, estimating the capital needs of China, India and Pakistan, pointed out that they must save 12.5% of the national income to absorb the increasing labour force and maintain the past rate of increase in productivity.

ADVERTISEMENTS:

In the under-developed countries, not only is the capital stock extremely small but, as pointed out above, the current rate of capital formation is also very low. The serious capital deficiency in under-developed countries is reflected in the small amount of capital equipment per worker and in limited knowledge, training and scientific advance.

These are serious handicaps in economic development and here the banks can play a useful role:

The role of banks in economic development is to remove the deficiency of capital by stimulating savings and investment. A sound banking system mobilizes the small and scattered savings of the community, and makes them available for investment in productive enterprises.

In this connection, the banks perform two important functions:

(a) They mobilize deposits by offering attractive rates of interest, thus converting savings,, which otherwise would have remained inert, into active capital.

(b) They distribute these savings through loans among enterprises which are connected with economic development. In this way, they promote the development of agriculture, trade and industry.

It is difficult to see how, in the absence of banks, could small savings be stimulated or even made possible. It is also difficult to see who would distribute these savings among entrepreneurs. It is through the agency of the banks that the community’s savings automatically flow into channels which are productive.

The banks exercise a degree of discrimination which not only ensures their own safety but which makes for optimum utilization of the financial resources of the community. We see that in India the period of economic development has coincided with a phenomenal increase in bank deposits—and bank offices.

Thus, the banks have come to play a dominant and useful role in promoting economic development by- mobilising the financial resources of the community and by making them flow into the desired channels. The Indian banks are now playing a very active role in fostering economic development of the country.

Role of Banks in the Economic Development of a Country
Role of Government in Economic Development of a Country
Role of Taxation in Financing Economic Development
Role of Government in Economic Development

Essay on Banking

Banking is a very powerful instrument of social change. Banks are playing a crucial role in bridging the gap between the rich and the poor. In fact, banking is the backbone of the modern economy. It is difficult to visualize how trade, commerce or business can be conducted without an efficient banking system.

They only wanted to fill their own pockets and never missed an opportunity to exploit the poor and the needy. There was nobody to check these malpractices. People condemned the money lenders, but they could not do much. They felt helpless once they were caught in the vicious net of the money-lender.

With a view to bringing commercial banks into the mainstream of economic development with definite social obligations and objectives, the Government acquired the control and ownership of 14 major banks in the country in July 1969.

Six more banks were nationalised in April 1980 Some of the objectives of the public sector banks were: (a) to mobilise savings of people to the largest possible extent and utilise these for productive purposes, (b) legitimate credit needs of the private sector, (c) to acutely foster opportunities for helping neglected and backward areas of the country, (d) curb, use of bank credit for speculative and unproductive purposes.

The philosophy behind nationalisation of banks was that they should function as an instrument for promoting economic and social development in more purposive manner. As against 8262 branches at the end of June 1969, the number of branches at the end of 1992 was more than 60,000.

The thrust of expansion policy has improved the availability of banking facilities in rural areas. They have started extending loans at concessional rates of interest to small farmers, entrepreneurs, artisans, labourers and members of ST and SC. Lead Bank scheme was also introduced in 1969.

Unfortunately, the expectations of the policy makers and the people have not been fulfilled. Since the nationalisation of banks, there has been a slow deterioration in their services.

The banking staff has become ineffi cient, callous and indifferent to the public. Political interference has also adversely affected the working of the banks. Writing off of the loans for political gain, has put the banking services off the rails.

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What Is A Bank And How Does It Work?

Updated: Mar 31, 2022, 2:59pm

Banks and other financial institutions offer products and services to help you manage your money, but do you know how they work?

If you have a checking account , savings account, credit card, or loan, banks are integral to your financial life. Banks and the financial services industry are an important part of the economy because they provide the means for people to borrow money, make investments, save for the future and handle smaller tasks (like making deposits and paying bills).

Here’s a closer look at banks, how they work and why they matter.

What Is a Bank?

A bank is a financial institution regulated at the federal level, state level or both. The primary role of banks is to take deposits and make loans. But banks can offer a wide range of products and services, including:

Deposit accounts (checking accounts, savings accounts, CDs, money market accounts)
Loans, including mortgage loans, auto loans and personal loans
Credit cards
Check-cashing services
Wealth management services
Business banking

Most banks in the United States are insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC covers deposit accounts, up to specified limits, in the event that a bank fails. The current FDIC coverage limit is $250,000 per depositor, per account ownership type, per financial institution.

There are several types of banks (see Types of Banks below). Here we’re mainly referring to retail banks.

What Is a Financial Institution?

A financial institution is an entity that engages in transactions involving the movement of money or financial assets from one place to another. Examples of financial institutions include:

Credit unions
Savings and loan associations
Small business investment companies
Mortgage lenders
Investment broker-dealers
Credit card companies
Insurance companies

The type of financial institution typically defines the type of activities or financial transactions it engages in. For example, mortgage lenders make home loans while credit card companies extend revolving lines of credit to consumers.

Financial institutions can be subject to regulation by the federal government. Investment broker-dealers, for instance, are regulated by the Securities and Exchange Commission (SEC).

How Banks and the Banking Industry Work

Banks, whether brick-and-mortar institutions or online, manage the flow of money between people and businesses. More specifically, banks offer deposit accounts that are secure places for people to keep their money. Banks use the money in deposit accounts to make loans to other people or businesses.

In return, the bank receives interest payments on those loans from borrowers. Part of that interest is then returned to the original deposit account holder in the form of interest—generally on a savings account, money market account or CD account. Banks primarily make money from the interest on loans and the fees they charge their customers.

These fees can be tied to specific products, such as bank accounts or related to financial services. For example, an investment bank that offers portfolio management to investors can charge a fee for that service. Or, a bank may collect an origination fee when granting a mortgage loan to a homebuyer.

Banking is a highly regulated industry. The Federal Reserve System oversees banks and other financial institutions and coordinates with state regulatory agencies to help ensure banks follow the proper guidelines. Banks are also subject to regulation by other federal agencies, including the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC) .

Types of Banks

“Bank” is a broad term that encompasses a number of different financial institutions. Understanding the various types of banks matters as they aren’t all alike in the services or products they provide and the functions they serve. Some are consumer-facing, meaning they directly serve the general public. Others play a more strategic role in the flow of money through the economy. Take a peek under the banking umbrella. You’ll find the following:

Central banks
Retail banks
Commercial banks
Investment banks
Shadow banks

Here’s more on how each type of bank works and what they’re designed to do.

Central Banks

Central banks manage the supply of money for a country or group of countries. These banks are responsible for setting monetary policy, overseeing the movement of currency and establishing interest rate baselines. In short, they’re the backbone of a nation’s banking system.

In the U.S., the Federal Reserve is the central bank. The Federal Reserve System is composed of 12 regional federal banks. The Federal Reserve’s earnings come from interest on securities the bank owns and net earnings are paid to the U.S. Treasury. Banks within the Federal Reserve System perform four specific duties, including:

Supervising and examining state member banks
Lending to depository institutions
Providing key financial services to help manage the nation’s payment system
Examining financial institutions

Those functions are central to how banking works in the U.S. and they make it possible for you to do everything from swiping your debit card when shopping online to getting a mortgage.

Retail Banks

Retail banks are probably what most people think of when they think of banking. These banks offer loans, deposit accounts and other banking services to everyday customers, including small business owners. Retail banks can be brick-and-mortar institutions with branches or online banks that allow you to manage your money exclusively through an app.

Banking services offered by nonbank entities may also fall into this category. For example, a growing crop of fintech startups, also called neobanks , offer deposit accounts just like you’d find at a bank. These companies partner with existing banks to offer FDIC-insured banking products and services, though they’re not banks themselves.

Commercial Banks

Commercial banks typically cater to businesses or corporations, although they can also serve individual banking customers’ needs. Similar to retail banks, commercial banks also can make loans and offer deposit accounts and other banking services such as international banking or payment processing

Commercial banks generally provide a wide range of services. A commercial bank, for example, may grant real estate loans or business equipment loans, charging borrowers interest and fees for the privilege of borrowing money. The same financial institution can offer commercial banking services alongside retail banking services.

Investment Banks

Investment banks can participate in securities trading, manage investor accounts or do a little of both. An investment bank can act as a go-between for investors who want to put money into the markets by helping with the purchase or sale of securities. They also can offer investment advice to clients.

Aside from assisting retail investors, investment banks perform other functions. For example, they can assist with the underwriting process when a company is planning its Initial Public Offering (IPO). An investment bank may also help facilitate mergers and acquisitions on behalf of corporate entities.

Shadow Banks

Shadow banks aren’t like traditional banks regarding what they do or how they’re regulated. These nonbank financial institutions are generally unregulated and primarily focus on making investments in credit and debt instruments. Insurance companies and hedge funds are examples of shadow banking institutions.

Shadow banking and shadow banks played a role in the 2008 financial crisis .

Savings and Loan Associations

Savings and loan associations aren’t strictly banks either. These financial institutions specialize in helping people borrow money to buy or refinance a home they already own. A saving and loan association may also be called a “thrift” because once upon a time, they only offered savings deposit accounts once upon a time.

Rather than being covered by the FDIC, savings and loan associations are typically insured by the Savings Association Insurance Fund (SAIF).

Credit Unions

Credit unions , sometimes called cooperative financial institutions, offer many of the same services as traditional retail banks. The difference is that while retail banks typically operate for profit, credit unions don’t.

Credit unions are formed by “members” who pool their funds together and control the institution. Membership in a credit union is required to open an account. These requirements may be based on geography, employment, religious affiliation or military affiliation. Rather than being FDIC insured, credit unions generally are insured by the National Credit Union Administration (NCUA).

Credit Union vs. Bank

Banks and credit unions both serve the same general purpose: Helping consumers and small businesses to manage their money. They also tend to offer similar banking products, such as:

Checking accounts
Savings accounts
Certificates of deposit (CDs)
Money market accounts (MMAs)
Personal loans and lines of credit
Business bank accounts
Business loans

Where they differ lies largely with how they operate. As mentioned above, banks tend to operate on a for-profit basis while credit unions do not. Credit unions may charge fewer fees to their customers or offer lower interest rates on loans.

Banks and credit unions offer the same level of protection in the event of failure, but different entities insure them. Banks are generally FDIC-insured, while the NCUA insures credit unions. There’s usually no membership requirement with banks to open an account the way there are with credit unions.

Credit Unions	Banks

Types of Bank Accounts

Consumers usually view banks as places to keep money or as places to go to borrow money. The types of accounts you can have with a bank may include:

Money market accounts
Credit card accounts
Mortgage loans
Student loans

Checking Accounts

A checking account is a deposit account that allows you to deposit money, pay bills and make purchases by writing checks or using your debit card. Checking accounts are designed to hold the money you plan to use in the near term. Depending on the bank, you may pay a monthly maintenance fee to own a checking account. Banks can charge other fees as well, including overdraft fees .

Processing transactions is another important job for banks, which goes on behind the scenes with checking accounts. When you swipe your debit card or use your ATM card to make a withdrawal, that transaction has to be approved by your bank before it can be processed. Banks also make it possible to make electronic Automated Clearing House transfers or wire transfers between individuals, businesses and financial institutions.

Savings Accounts

Savings accounts are deposit accounts designed to hold the money you don’t necessarily plan to spend right away. These accounts often pay interest to savers, though some banks may offer higher interest rates than others.

Depending on the bank, you may be able to access money in your savings account at a branch, ATM or online. While the government has suspended the federal regulations limiting you to six withdrawals per month from a savings account, your bank may cap the number of withdrawals you can make. Or, the bank may charge a fee for each withdrawal over six.

Money Market Accounts

Money market accounts typically pay interest like a savings account and provide withdrawal options similar to a checking account. For example, you may be able to write checks, make ATM withdrawals or make purchases using a debit card. Again, though banks can limit the number of withdrawals you can make from savings accounts and money market accounts each month.

A money market account may be a good option for saving money you’ve earmarked to spend later. For example, if you’re saving money toward a down payment on a home, you may choose to keep those funds in a money market account that includes check-writing abilities. When you’re ready to make your down payment, you can simply write a check from that account (or schedule a wire transfer).

Certificates of Deposit

CD accounts are time deposits that pay interest over a set period. Common CD terms typically range from 28 days to 60 months. But it’s possible to find CDs with terms as long as 10 or 20 years. Generally, the longer the term, the higher the interest rate you can earn. Banks can charge a penalty for withdrawing money from a CD before reaching its maturity date.

CDs are better suited for saving money you know you won’t need before the account matures. For example, you might use a CD to save money for a car you plan to buy in the next two years or a wedding that’s 18-months away. They’re less liquid than savings accounts or money market accounts.

How To Choose a Bank

When choosing a bank, it’s important to do your research. Start by looking at the types of products and services offered. Ideally, you want to find a bank that offers the accounts or services you need, whether a checking account, savings account or loan.

Next, consider the interest you can earn on deposits when opening a new savings, CD or money market account. You can also look at whether a bank offers interest on checking balances, though this is less common.

While banks can pay interest to savers, they also can charge them fees. The most common fees you might pay to a bank include:

Monthly maintenance fees
Excess withdrawal fees
Early withdrawal penalties for CD accounts
Overdraft or non-sufficient funds fees
Out-of-network ATM withdrawal fees
Debit card replacement fees
Cashier’s check, certified check and money order fees

You may avoid many of these fees by choosing an online bank over a traditional bank. Online banks tend to have lower overhead costs than brick-and-mortar banks, which means they can pass on those savings to customers in the form of lower fees. For the same reason, you may also find better interest rates on deposit accounts at online banks.

Finally, look at the convenience and service a bank offers. If you’re choosing a brick-and-mortar bank, how many branches does it have? Are they easily accessible to where you live and work? And does the bank offer a user-friendly online and mobile banking experience?

With an online bank, consider whether it has a robust mobile app. Can you access your accounts at an ATM and if so, will you pay a fee? Asking these kinds of questions can help you narrow down the list of banks.

Find The Best Online Banks Of 2024

Bottom line.

When comparing banks, check the range of products and services offered, as well as the fees and interest rates they pay or charge for borrowing money. Also, keep convenience in mind regarding the different ways you can access your money.

Frequently Asked Questions (FAQs)

How do central banks govern the banking industry.

Central banks implement a nation’s monetary industry and control the money supply. For example, when the economy is on the verge of overheating, the central bank may raise interest rates to cool off borrowing and spending. If the economy is sluggish, on the other hand, the central bank may lower rates to boost spending and encourage borrowing.

How do investment banks make money?

Investment banks can make money by charging fees for their services and earning commissions when they sell certain products. For example, an investment company may earn a commission for selling a certain type of mutual fund to investors.

Where is the best place to bank?

The best bank to bank with is the one that offers the products and services that best fit your needs. For example, if you need a checking account with no monthly fees or a savings account that offers a highly competitive APY, you may choose an online bank over a traditional bank. But if you need or prefer branch banking access, you may choose a brick-and-mortar bank instead.

Which type of bank account is best for everyday transactions?

A checking account is designed for everyday financial transactions, including depositing paychecks, paying bills, transferring money and making purchases via a linked debit card. Checking accounts can give you flexibility in managing and accessing your money, though it’s important to find one that offers the best combination of features and low fees.

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Rebecca Lake is a certified educator in personal finance (CEPF) and a banking expert. She's been writing about personal finance since 2014, and her work has appeared in numerous publications online. Beyond banking, her expertise covers credit and debt, student loans, investing, home buying, insurance and small business.

Services in Banks: Strategies and Plans Essay

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Introduction

Literature review, body of the paper: services in banks, bank strategies used to attract and satisfy clients’ needs, new plans for the future.

Services play an extremely essential role in political, economic and social aspects. It is not possible to imagine people’s life without personal, government, business, financial and other services. On a state economics level, service sector is one of the most reliable parts of country GDP. Mutually beneficial service practice strengthens not only interpersonal, but international relationships, as well. Every day, customers want to satisfy their needs from a service provider.

Naturally, the role of bank services in the context of state economics and business can not be underestimated. Bank operations influence macro-economic indices and welfare of society. Worldly recognized first-rate banks of the world, located in Switzerland, the UK, the USA, Japan, France, etc. attract their clients with many-years experience, good reputation, reliability and safety of bank services and operation. Such banks use effective strategies to achieve the customer satisfaction. The aim of the present essay is to reveal the multifaceted nature of bank services through understanding bank strategies and examining the experience of specific banks.

The role of services in people’s life is great. All services are performed for a customer, called to provide his life with comfort, satisfying his needs. Services support and facilitate customer personal life. The essence of a service is to help and do work for someone. Mutually beneficial service providing has become the basis for business, trade, interpersonal and international relationships. There are many people employed in services. According to some researchers, in 2005, there were about 80 % of people in the USA involved in the service sector. The indices of another countries are also notably high: the UK – 77%, Canada – 76%, Germany – 68, 5%, etc. (Fitzsimmons, & Fitzsimmons, 2008). As one may see, services are appreciated and demanded by people.

In the history of human civilization, economic evolution has proved favourable environment created by services. A service offers commodity, and performs delivery function (on customer demand). It has an intangible nature, and customized attribute. Any service should be directed to benefits of both a client (buyer) and a provider (seller). Information technology and innovations are the main sources of service sector growth (Fitzsimmons, & Fitzsimmons, 2008).

Banking and bank services have been in the scope of interest of many researchers. For example, Mullineux and Murinde (2003) dedicated their book to the problem of international banking. Mishra (2010) examined a bank in the context of microeconomics and macroeconomics, and the essence of the financial system, where a bank plays an exceptionally essential role.

Analyzing the works of these and other relevant researchers, one may see that a bank is a complex and unique financial institution that performs numerous functions, and provides a wide range of services to its clients. Being a financial intermediary, a bank can be central (issues governmental money and regulates the money supply), commercial (accepts deposits and channels them into landing activities with the help of capital markets), and savings one (receives customer savings accounts, and pays interest to depositors). In addition, most of people have become clients of retail bank, as it provides its services to general public. A modern bank has so many functions that it is difficult to enumerate them all. In general, a bank “accepts deposits from the public, makes fund available to those who need them, and helps in remittance of money from one place to another” (Mishra, 2010, p. 181.). In other words, a bank deals with money and credit in a different way. This is the main essence of commercial banking.

Bank strategies were in the scope of the researchers, as well. For example, Botten and McManus (1999) described the British Internet-oriented strategy that gave bank clients to make financial operations in a cyberspace. Bank card system gave rise to application of other strategies.

Smart bank card applications technology contributes to electronic financial solutions. The network of Automated Teller Machines (ATM) allowed banks to dispense its services to customers through a Personal Identification number (PIN) and a magnetic card. ATM gave customers an opportunity to be engaged in “receiving and dispensing cash, funds transfer between accounts, balance enquiries, etc.” (Wonglimpiyarat, 2005, p. 6). At the same time, Visa, MasterCard and bank’s ATM networks serve to promote its brand, and spread its services among the world population.

Future of the bank services attracted researchers’ attention. In the 90s, it was evident, that globalization, commercialization and Internet expansion reflected on bank performance. Blery and Michalakapoulos (2006) believe that customer-oriented strategies will be applied in the future. Banks will tend to make services more effective, accessible, time-saving, quality and satisfying. New innovative technologies and additional Internet opportunities will contribute to this process.

Numerous functions of a bank predetermined the presence of range of services to its consumers. According to Mishra, it is possible to differentiate the following principal services. First, it accepts deposits: many people prefer saving their money in banks. This function helps people to earn interests and avoid theft. The presence of different types of accounts allow banks to attract clients’ savings: fixed (money is deposited for a fixed period of time; the rate of interest is high), current (serves businessmen and traders to make payments every day, making them pay incidental charges for a service), saving (encourages and mobilizes small savings with a low rate of interest; the number and amount of withdrawals is limited), recurring (encourages regular savings with interest of maturity of depositions; a rate of interest is relatively high), home safe (promotes saving habits under a special scheme), etc. deposit accounts (Mishra, 2010).

Second, a client may take advantage of loans, becoming debtor of a lending bank. However, loans are granted by a bank, depending on the creditworthiness of the borrowers (depends on clients yearly income). Among various types of loans, there are the following ones: money at call (a short period loan, provided for banks and other financial institutions), cash credit (given to a borrower against his current assets, and allows to withdraw money from time to time), overdraft (a borrower is allowed to withdraw more money than his deposits), discounting of bills of exchange (a popular and self-liquidating loan that gives an opportunity to pay the bill with the help of bank commission), and term loans (medium- and long-term loan that allow the amount to be either paid or credited to the borrower’s account; it must be repaid) (Mishra, 2010).

Credit creation is the following bank service: “a bank has the ability to create credit many times more than its deposits, and this ability to multiple credit creation depends on its cash-reserve ratio” (Mishra, 2010, p. 183). Credit creation is favoured by many people, because it allows to obtain good or service before payment. Promoting cheque system is the other bank service that became popular in the age of business transactions: “through a cheque, the depositor directs the banker to make payment to the payee” (Mishra, 2010, p. 183).

Also, a bank provides a customer with the following agency services: remittance of funds, payment and collection of credit instruments (bills of exchange, cheques, etc.), execution of standing orders (for example, a bank may pay rent on behalf of its clients), sale and purchasing of securities (bonds, stocks, shares, etc.), collection of dividends on shares, income tax consultancy, acting as executor and trustee (preserves its customers’ wills after their death), acting as a correspondent and representative (a bank may get traveller’s tickets, passports, and receive letters on clients’ behalf).

Besides, a bank provides its customers with general utility services: locker facility (valuables and important documents are kept for safe custody in a bank), traveller’s cheques (a customer may travell without the fear of loss and theft of money), letter of credit (used in foreign trade to certify customer’s creditworthiness), collection of statistics (a bank keep important information about country money, industry, commerce, trade, banking; publishes bulletins and journals with research articles), underwriting securities, gift cheques (of various denominations), acting as referee (for seeking information about its customers’ business reputation, financial position, and respectability), and foreign exchange business (by discounting foreign bills of exchange, a bank finances foreign trade) (Mishra, 2010).Nevertheless, people’s daily life suggest the idea that payment services are the most demanded services of a bank that meet customer needs every day.

One of the world financially strength banks in the world that satisfy its clients with practically all possible services, accessible for both general and elite public, is National Bank of Abu Dhabi (NBAD), founded in 1968 (Oxford Business Group, 2007). It has served as a central bank that actively participates in formation of the currency abroad. In 2005, its net profit equaled “$702, 42 m, return on quality of 43, 9% and total assets of $22, 76 bn” (Oxford Business Group, 2007, p. 97). Nationals who live outside the UAE have certain preferences in bank services. In general, the bank offers quick, reliable and secure services, giving an opportunity to take advantage from personal, corporate, and free Internet banking. Provision with personal bar-code, bank archive data, credit cards, currency exchange, time deposits, account opening, online trading are only one of possible services, available there (National Bank of Abu Dhabi, 2011). The researchers believe that

“NBAD is the chief provider of corporate services to business, the government, key public sector institutions, and major corporate groups. Corporate services include cash flow management, foreign exchange, and capital market products and assess management” (Oxford Business Group, 2007, p. 97).

Providing the mentioned services, NBAD keeps up the evolving international market, as well, because the considerable number of its clients is foreigners. This bank is able to meet the needs of growing market owing to its successful and effective development strategies. Also, NBAD has developed the advantageous system of international partnership. For example, Italia and Japan take part in corporate cross-border transactions. The bank has 23 overseas units and banking divisions located in Paris, Cairo, Oman, etc. that constituted the branch network that allow to provide with bank services customers from different corners of the world (Oxford Business Group, 2007).

In general, banking is an important service industry for all countries. In a bank, all customer-provider relationships and interactions are concentrated around services. For this reason, services are the most essential integrative elements of banking. Bank services are appreciated by general public, because they help people to achieve what they want: to buy a good or service, to transact money, to get borrower’s credit, etc. Providing a client with a service, a bank is interested in success, as well: a service produces benefit for a bank (difference between amount of deposits and credit percentage) and additional money supply that plays important role for state economy. When a client comes to a bank to get a certain service (for example, he wants to be accommodated with a loan), it should meet consumer expectations.

According to some researchers, it is reliability, responsiveness, assurance, empathy and tangibles (Fitzsimmons, & Fitzsimmons, 2008). Hence, a bank should have credibility; bear responsibility for services provided. Besides, a client should be assured that a bank is able to provide the needed service on favourable terms. A provider should understand the reason of the demanded service, and demonstrate empathy to the client (in case of a loan, it can be family’s financial necessity owing to back pay, unexpected constrained loss of money, a desire to buy a house or a car). Loan is tangible if a consumer get desirable amount of money before he can repay the debt.

There are many bank strategies called to attract new customers and satisfy their needs. One of them was applied in 1996 by the royal Bank of Scotland. It became the first bank in the UK that offered its clients bank services on the Internet. Since that time, direct banking by PC became possible. It was estimated that about 60 % of the UK population used to pay their bills and check the accounts using a home computer (Botten & McManus, 1999, p. 205). The Internet-oriented strategies of the UK banks allowed internet users to print statement, pill bills, transfer account data into home-banking software package, and take advantage from on-line services and PC banking services (including mobile commerce) (Botten & McManus, 1999).

Bank card innovations of the 1970s gave rise to new competitive strategies in the UK and USA banking sectors. However, the bank card on-line system was quickly extended across the world, because it made bank services (especially, payment ones) accessible and efficient; it notably contributed to electronic commerce that allow to make electronic transactions on the Internet, and buy a product. As one can see on the figure 1 (see appendices), on-line shopping has notable advantages (for example, timesaving capability), in comparison with traditional shopping, that meet modern consumer needs. However, there are some disadvantages, as well (for example, it requires delivery fee) (Fitzsimmons, & Fitzsimmons, 2008).

Nowadays, credit plastic cards, issued by banks, are used every day: they allow to purchase goods and services on credit. Besides, electronic cash currency system proved to be extremely convenient (Wonglimpiyarat, 2005). Credit card and electronic service strategies facilitate the social life: owing to these strategies, people easily make certain banking operations, get cash money from a card, and buy certain goods and services through mobile e-commerce.

Globalization, decreasing customer loyalty, economic volatility, resource outsourcing and other factors made banks to elaborate survival strategies for financial services. The essence of these strategies lies in the following processes: workforce performance improvement, cost reduction, revenue enhancement, return increase, cost-effective activities, integration of up-to-date technologies, etc.

Capitalization of banks plays an extremely important role in bank strategies. Retail banking strategies that practiced in Europe were adopted on the CEE ground. As the internet decreased the customers’ loyalty, banks needed special customer-oriented strategies called to increase bank clients’ loyalty. The loyalty programs that provided special benefits to customers were introduced. Traditionally, cooperative banks possessed “a strong loyalty tool, membership of the bank”.(Groeneveld & Wagemakers, 2004, p. 6).

Besides, Customer Relationship Membership (CRM) systems provide banks with good knowledge of their clients that allow banks to meet their needs. For this reason, many banks used to chose a niche-strategy, and focus on a specific customer need (real estate segment, for example). Retail banking is an extremely competitive industry, for this reason, CRM have certain priorities. Figure 2 (see appendices) shows that three top priorities are customer loyalty, profit growth and client satisfaction (PricewaterhouseCoopers, 2003).

Retail networks are used to sell all kinds of possible products: multidistribution provides with alternative options. For example, multi-channeling strategy, described as “selling products and servicing of clients with different channels, such as branches, ATMs, telephone and internet”, attracts clients with free choice, diversity of channels for different clients, and cost savings. (Groeneveld & Wagemakers, 2004, p. 7). The European largest internet bank, Rabobank, is a virtual distribution channel that offers transaction services on internet-mode technology that allows all users of mobile phones to make bank transaction operations.

Some banks offer other essential strategies that improve customer experience, leverage up-sell and cross-sell opportunities, and promote customer satisfaction. Some of retail bank strategies sound in the following manner: “facilitate integrated and consistent interactions across all channels”, “offer an inviting “Customer Front Door”, “integrate self-service with agent assistance”, etc. (Genesys, 2008, p. 3). On the whole, the strategies mentioned in this part of the essay, are beneficial for both banks and customers; moreover, all of them are called to attract and satisfy customer’s needs in a different way.

CRM systems have proved its effectiveness in aggressive bank competition, and will be used in the future. The strategic importance of CRM is obvious: it helps banks “to build long-lasting relationships with their customers and increase their profits through the right management system and the application of customer-focused strategies” (Blery & Michalakapoulos, 2006, p. 116). The Greek bank and other banks that use CRM system will be able to focus on most profitable customers with the help of efficient segmentation that corresponds to clients’ individual behaviour.

The commercial approach based not only the product but a client, as well, will help to satisfy and retain bank customers. Obviously, more banks will implement voice and phone banking services (loans, stock exchange transactions, etc.) and customer segmentation system (that responds to clients’ needs, interests, habits, etc.), and more clients will take advantage from synchronized networks, offered by banks (branch ATM, Interactive Voice Response, telephone center) (Blery & Michalakapoulos, 2006).

Even modern successful banks are concerned with plans for the future that will bring them more customers, more innovations, and better profit. The research of Oxford business group showed that development strategy of NBAD for the future is directed to expansion and positive innovative changes: installation of new ATM, opening of new branches, provision with first mobile phone banking service in the Middle East and North Africa region (Oxford Business Group, 2007).

Revolutionizing e-commerce is one of the reasons why banking system should be improved and transformed. Internet banking of the future will “reduce transaction costs, enhance customer service, increase the customer base and improve cross-selling opportunities” (Nath et al., 2001, p. 21). The phenomenon of Internet banking can not be underestimated, as it is future of modern society: the number of Internet and PC users grows every day. Online loans, brokerage services, bill payment will be popular clients’ banking activities in cheap cyberspace of electronic banks. Additional and expanded online bank services will be available to clients in private and business life. In addition, “banks are adding real-time loan applications, the ability to make Individual Retirement Account investments, and the opportunity to trade stocks through their web sites” (Nath et al., 2001, p. 26). Thus, the concept of “one-stop shopping” will be wide spread in the future.

Taking into consideration all the information mentioned above, one can make the following conclusion. Bank services serve for the benefit of people, engaged in financial relationship, commerce, business, and other activities. Owing to a great variety of bank services, a customer may deposit, save, transact, exchange, loan money, get a credit card, purchase goods and service via Internet, etc. There are many effective, development and competitive bank strategies used to attract and satisfy clients: customer-oriented strategies, electronic service strategies (Internet-oriented, e-commerce), retail banking strategies (multi-channeling), etc. However, successful future for banks consists in improved, expanded and quality e-banking services that serve for the customer’s benefit in the commerce, business and private life, customer segmentation, increasing and improving clients’ opportunities.

Blery, E., & Michalakapoulos, M. (2006). Customer relationship management: a case study of a Greek bank. Journal of Financial Services Marketing, 11 (2), (pp. 116-124). Web.

Botten, N., & McManus, C. (1999). Competitive Strategies for Service Organizations. Basingstoke, UK: Purdue University Press.

Fitzsimmons, F., & Fitzsimmons, M. (2008). Service Management: Operations, Strategy, and Information Technology (6 th ed.). New York, NY: McGraw-Hill.

Genesys. (2008). Industry strategy guide: customer service strategies for the retail banking industry. Web.

Groeneveld, J., & Wagemakers, J. (2004). Retail bank strategies in Europe. Economic Research Department. Web.

Lele, U. (2000). The World Bank Forest Strategy: Sticking the Right Balance. Washington, DC: World Bank Publications.

Mishra, S. (2010). Engineering Economics and Costing. Philadelphia, PA: PHI Learning.

Mullineux, A., & Murinde, V. (2003). Handbook of International Banking. Cheltenham, UK: Edward Elgar Publishing.

Nath, R., Schrick, P., & Parzinger, M. (2001). Bankers’ perspective on Internet banking . E-Service Journal, 1 (1), (pp. 21-36). Web.

National Bank of Abu Dhabi. Official Website. Web.

Oxford Business Group. (2007). The Report: Abu Dhabi 2007. Dubai, UAE: Oxford Business Group.

PricewaterhouseCoopers. (2003). Tackling the key issues in banking and capital markets. Web.

Wonglimpiyarat, J. (2005). Strategies of Competition in the Bank Card Business: Innovation Management in a Complex Economic Environment. Brighton, BN: Sussex Academic Press.

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IvyPanda. (2020, June 5). Services in Banks: Strategies and Plans. https://ivypanda.com/essays/services-in-banks-strategies-and-plans/

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IvyPanda . 2020. "Services in Banks: Strategies and Plans." June 5, 2020. https://ivypanda.com/essays/services-in-banks-strategies-and-plans/.

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Maine Law Review

Home > JOURNALS > MLR > Vol. 60 > No. 2 (2008)

The Role of a Banking System in Nation-Building

John L. Douglas

It seems strange to have a discussion of nation-building devoted to the importance of a banking system. After all, when we think of nations, we think of constitutions, borders, and functioning governments. When we think of failed nations, we think of a lack of effective government, a loss of control over society, and a breakdown in law and order. Banks hardly figure into that discussion at all. Indeed, in our society, while banks play an important role, they usually reside quietly in the background. Many of us never set foot in a bank. Our paychecks may be deposited in a bank, and if we need cash (a somewhat rare occurrence these days), we will go to an ATM. Of course a bank may be involved somehow in giving us a credit card or a debit card and may be involved somehow in providing an automobile or home loan. In many ways, banks are simply part of the general noise and clutter of modern society. We pay attention when something goes wrong, but otherwise banks are sort of like washing machines. They do their job, occasionally need fixing, but it is hard to think that a washing machine (or a bank) is all that important in nation-building. This Essay proffers the proposition that a banking system is more than background noise. A banking system functions as the heart and lifeblood of any functioning economy. A banking system is the key to economic growth and development. It is essential to unlocking wealth, creating opportunities, providing jobs, and facilitating commerce. It provides a mechanism for individuals and businesses to participate in the global economy. Importantly, banks, when they do their jobs correctly, allow their customers to have a vested interest in a strong and stable society. However, one no more builds a nation by establishing a banking system than one builds a nation by writing a constitution. A banking system is important in part because of the elements required to make it function: a legal system that respects contracts and agreements, honoring the rights of both debtors and creditors; an independent central bank; a judiciary that follows the rule of law; and a government that understands the importance of strong, healthy banks and provides sound supervision and a legal framework within which they can operate. Only then can the banking system accomplish its primary roles—that of providing a safe haven for the funds of the public and a means to devote those funds in productive loans to build the economy. A healthy banking system, then, not only helps build a nation for what it does, it helps build a nation for what it requires.

Recommended Citation

John L. Douglas, The Role of a Banking System in Nation-Building , 60 Me. L. Rev. 511 (2008). Available at: https://digitalcommons.mainelaw.maine.edu/mlr/vol60/iss2/14

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Essay Topic | Articles | The Role of Fintech in Transforming Banking Services

The role of fintech in transforming banking services.

Fintech, the intersection of finance and technology, has revolutionized the banking industry. It has disrupted traditional banking models by introducing innovative solutions that enhance customer experience, improve efficiency, and expand financial inclusion. 1. Adapting to the Future: FinTech’s Influence on the Financial Sector – Cybage www.cybage.com 2. Customers in the spotlight: How FinTech is reshaping banking – PwC www.pwc.com

The Rise of Fintech

The emergence of fintech can be attributed to several factors:

Technological advancements: Advancements in mobile technology, cloud computing, and data analytics have created the foundation for fintech innovation.
Changing customer expectations: Customers demand faster, more convenient, and personalized banking services. 1. Why Fintech is Growing: 4 Key Drivers & Unexplored Opportunities – MadAppGang madappgang.com
Regulatory changes: A more conducive regulatory environment has encouraged fintech startups to flourish.

Key Areas of Fintech Impact

Fintech has transformed various aspects of banking:

Digital Payments: Fintech companies have pioneered digital payment solutions such as mobile wallets, peer-to-peer payments, and contactless payments. These solutions have made transactions faster, more secure, and accessible to a wider population. 1. 3 FinTechs propelling Contactless Payments Technology in India – IBS Intelligence ibsintelligence.com 2. Mobile payments explained: A guide for businesses – Stripe stripe.com
Lending: Fintech has disrupted traditional lending models by offering alternative lending options, including peer-to-peer lending, crowdfunding, and microfinance. These platforms have expanded access to credit for individuals and businesses. 1. The Disruptive Impact of Alternative Lending on Incumbents – FintechOS fintechos.com 2. How Fintech Applications Are Transforming Banking And Financial Services Industry successive.tech
Wealth Management: Fintech has introduced robo-advisors, which use algorithms to provide automated financial advice. These platforms have made wealth management more affordable and accessible to a broader audience. 1. What Is a Robo-Advisor? – Investopedia www.investopedia.com 2. Robo-advisors in the investment and wealth management industry mauritiusfintech.org
Insurtech: Fintech has disrupted the insurance industry by offering innovative products, improved customer experience, and efficient claims processing. 1. The fintech revolution in insurance | Deloitte | FSI www.deloitte.com
Blockchain: This technology has the potential to revolutionize banking by providing secure, transparent, and efficient transaction processing. 1. Blockchain technology: transforming the future of banking | DBS Bank www.dbs.com

Benefits of Fintech for Banks

While fintech companies have posed challenges to traditional banks, they have also presented opportunities for collaboration and innovation. By partnering with fintech firms or adopting fintech technologies, banks can: 1. The symbiotic relationship and collaboration between commercial banks and fintechs in Turkey | Humanities and Social Sciences Communications – Nature www.nature.com

Improve customer experience: Fintech-powered solutions can enhance customer satisfaction by offering personalized services, faster transaction processing, and better customer support. 1. How Does FinTech Impact the Banking Industry? – Radixweb radixweb.com
Increase efficiency: Fintech can help banks streamline operations, reduce costs, and improve productivity. 1. Fintech’s Role in Cost Reduction for Financial Institutions and Lenders – REPAY Blog blog.repay.com
Expand market reach: Fintech can enable banks to reach new customer segments, including underserved populations.
Manage risk: Fintech solutions can help banks identify and manage risks more effectively. 1. Fintech, Bank Risk-Taking, and Risk-Warning for Commercial Banks in the Era of Digital Technology – Frontiers www.frontiersin.org

Challenges and Opportunities

Despite the numerous benefits, the integration of fintech into the banking industry is not without challenges. Issues such as data security, regulatory compliance, and competition from fintech startups need to be addressed. 1. The Integration of Fintech into the banking sector – ResearchGate www.researchgate.net

However, the opportunities for collaboration between banks and fintech companies are immense. By combining the strengths of both, the industry can create innovative solutions that benefit customers and drive growth. 1. Navigating Innovation: Fostering Collaboration Between Banks and Fintechs thefintechtimes.com

The Future of Banking

The future of banking is likely to be characterized by a symbiotic relationship between traditional banks and fintech companies. As technology continues to evolve, we can expect to see even more disruptive innovations in the financial services industry. 1. The Rise of Fintech: How Technology is Reshaping Financial Services | Infosys BPM www.infosysbpm.com

Some potential trends include:

Hyper-personalization: Banks will leverage data analytics to offer highly personalized financial products and services.
Artificial intelligence: AI will play a crucial role in fraud detection, customer service, and risk management. 1. What is fintech, Benefits of the Fintech Revolution & more – OmniCard omnicard.in
Open banking: The sharing of financial data between banks and third-party providers will create new opportunities for innovation.

By embracing fintech and adapting to the changing landscape, banks can position themselves for long-term success.

Where Tim Walz Stands on the Issues

As governor of Minnesota, he has enacted policies to secure abortion protections, provide free meals for schoolchildren, allow recreational marijuana and set renewable energy goals.

Share full article

Gov. Tim Walz of Minnesota, center, during a news conference after meeting with President Biden at the White House in July.

By Maggie Astor

Aug. 6, 2024

Gov. Tim Walz of Minnesota, the newly announced running mate to Vice President Kamala Harris, has worked with his state’s Democratic-controlled Legislature to enact an ambitious agenda of liberal policies: free college tuition for low-income students, free meals for schoolchildren, legal recreational marijuana and protections for transgender people.

“You don’t win elections to bank political capital,” Mr. Walz wrote last year about his approach to governing. “You win elections to burn political capital and improve lives.”

Republicans have slammed these policies as big-government liberalism and accused Mr. Walz of taking a hard left turn since he represented a politically divided district in Congress years ago.

Here is an overview of where Mr. Walz stands on some key issues.

Mr. Walz signed a bill last year that guaranteed Minnesotans a “fundamental right to make autonomous decisions” about reproductive health care on issues such as abortion, contraception and fertility treatments.

Abortion was already protected by a Minnesota Supreme Court decision, but the new law guarded against a future court reversing that precedent as the U.S. Supreme Court did with Roe v. Wade, and Mr. Walz said this year that he was also open to an amendment to the state’s Constitution that would codify abortion rights.

Another bill he signed legally shields patients, and their medical providers, if they receive an abortion in Minnesota after traveling from a state where abortion is banned.

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At The Washington Post, Long has played a large role in identifying and covering the "K-shaped" economic recovery from the COVID-19 pandemic and the "great reassessment" of work. Before joining The Washington Post, she was a senior economics reporter at CNN and deputy editorial page editor at The Patriot-News in Harrisburg, Penn., when ...
Where Tim Walz Stands on the Issues
As governor of Minnesota, he has enacted policies to secure abortion protections, provide free meals for schoolchildren, allow recreational marijuana and set renewable energy goals.

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Essay on Bank

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Essay on Bank

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