What is a Bank? – Types, Financial, Institutions, Power and More
What is a Bank?
A bank is an intermediary between depositors (those who lend money to it) and borrowers (to whom it lends money). The usual practice is to collect capital from different individuals or companies that deposit their trust and resources in it through savings accounts or current accounts.
At the same time, a bank functions as one more company and has its funds on many occasions. Of course, also with their business idea when dealing with a credit or other types of operations in finance.
Types of Banks
The existing banks in the economic scheme make up the bank or banking system. Having said all this, the bank has different modalities according to the sector. In which this entity directs and the size of its action. There are two types of banking:
- Retail banking: The most common in simple operations of individuals and companies. In turn, it divides into:
- Private banking: financial advice, investment funds, etc.
- Personal banking: sight accounts, deposits, receipts and payroll, mortgages, credits, etc.
- Wholesale banking: Intend for large sizes of money from critical economic operations. It divide into two segments:
- Investment banking: financial structures, mergers and acquisitions (M&A), advice, etc.
- Business banking: Liability management (credit lines, factoring or confirming), fixed assets management (loans, leasing, renting, etc.).
Other Functions of a Bank
With the development of the banking sector, there are many other activities that this type of organization tackles. The banking system has come to have a significant influence on the lives of people and the business network around the world.
The creation of guarantees, routine tasks such as the direct debit of payments, the purchase and sale of a foreign currency or the storage of valuables or documents of great importance are other responsibilities that a bank meets within its regular activity.
The Bank as a Financial Entity
The banking system, recognise as banking, is the set of banks that work within an economy. In another intellect, a bank is a financial institution that is dedicated to money management. The bank offers services such as securities deposits and capital lending.
The concept of the bank as a financial institution began to develop during the Renaissance. Historians say that the first modern bank was the Banco di San Giorgio, founded in Genoa, Italy, in 1406.
How do these Institutions Operate?
To operate these entities, they need the support of many people and solvent companies that contribute their capital, depositing it in this entity and can give it on loan to third parties. Its return to the first after a certain period of an amount stipulated in advance in terms of Accumulated interests
In addition, they contribute to various shareholders who want to increase their capital and speculate on what they could own in a given period. The interest that the institution must contribute to its investors calculates based on the percentages of the donat and the time in which the contract that will seal will remain in force; these interests are the deposit interest rate.
With this money collect, banks can lend to people or institutions that require loans, agreeing in advance on the interest that they must pay to give the bank the security that it will repeat money; From these interests derives the enrichment of the financial entities since the interest rates to be paid by the applicants of these loans is usually higher than the deposit interest rate. The difference between both rates is the financial institution’s profit and is known under the Anglo-Saxon term “spread”.
The Power of the Banks
Unfortunately, and even though the foundation of these institutions plans to improve the quality of life of the inhabitants, what happens is precisely the opposite. The power that the governments have granted to the banks has led them to direct the strings that govern life in society and become the enemies of ordinary citizens.
In Spain, for example, those individuals who asked for a mortgage loan to be able to buy a house in instalments have found themselves in the terrible circumstance of, after losing their job, being kicked out of their homes for not being able to continue assuming the costs of the mortgage; banks evict people without any scruples and then put that home up for sale again, offering another loan and continuing to enrich themselves at the expense of people’s work and illusion.
The Intermediary Work of the Bank
The entity has said means to carry out an activity of granting loans to others. It whose repayment must bring with it the profit of a more significant amount depending on the interest rate that applies.
Financial intermediaries fulfil a vital commercial function since they are responsible for putting suppliers and applicants (savers) of financial products. In contact to activate the market by channelling savings towards investment and thus making investors’ capital profitable. The appearance of these capital gains gives meaning to the existence and viability of banks. Since these profits are first intended to offer returns to depositors and represent the benefit of the entity itself. For this reason, banks consider intermediary economic entities.
For this to be possible, the rates at which the bank commits to the initial depositors are usually lower than established. If when making the loans various factors such as risk are taken into account.
The evolution of the current concept of a bank dates back to the Renaissance and the appearance of the first entities to manage. They capitalised and were able to lend money to third parties with certain repayment conditions.
A bank is a company and financial institution that specializes in granting loans and collecting money from the public to generate savings. It is known as a credit or deposit institution.
It acts as an intermediary between people or entities to make deposits, and transactions, move capital and grant them credit. In addition to the above services, banks can provide wealth advice, insurance, management, and other financial services.
A bank manages the capital of the general public through various financial services. It is worth mentioning that today, thanks to advances in technology. If different banks have adapted these services to the digital plane. To continue satisfying customers’ needs and including innovation as part of the revolutionary process that is happening.
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