Bank is an institution for receiving, lending, exchanging, and safeguarding money and, in some cases, issuing notes and transacting other financial business.
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| Role of Banks |
For individuals.
- Pays interest on deposits
- Provide safety on customer's principals or deposits
- Provide payment mechanisms such as check, credit cards and on-line transfer
- Provide home loans and consumer loans
- Banks are the primary source of finance for businesses
- Banks provide an Investment Options to invest temporary surplus cash
- banks act as the intermediate for purchase and sale of foreign exchange
However, the primary goal of central bank is to provide their countries' currency with price stability by controlling inflations. A central bank also acts as the regulatory authority of a country's monetary policy and is the sole provider and printer of notes and coins in circulation.
Central Bank and Bank Structure.
Central Bank is a regulatory body which controls the banking system in economy and also acts as a Government's Bank.
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| Central Bank |
The Bank acts as a Government's Bank and meets its funding needs for various developmental activities.
The Central Bank of any country can be called the banker's bank. It acts as a regulator for other banks, while providing various facilities to facilitate their functioning.
It also acts as the Government's bank.
The main objective of a central bank is to provide the nation with a safer, more flexible, and more stable monetary financial system.
The central bank:
· Conducts the nation's monetary policy
o Central Banks define the monetary policy and then take necessary actions to create an environment to make those policies feasible.
· Ensures sufficient pool of funds
o The Central Bank can increase or decrease money supply through various means to control interest rates and inflation.
· Provide financial services to the government
o The Central Bank acts as the central Government's Bank and provides various services.
· Monitors the foreign currency assets and liabilities
o The country will have foreign currency reserves and also need to make payments in FOREX. It is the Central Bank's responsibility to manage FOREX receipts and payments.
· Maintains the stability of the financial system
o The central Bank supervises and regulates banks and financial institutions.
Central banks define the monetary policy and then take necessary actions to create an environment to make those policies feasible.
The Central Bank can increase or decrease money supply through various means to control interest rates and inflation.
The Central Bank acts as the Central Government's bank and provides services. The country will have foreign currency reserves and also need to make payments in FOREX. It is the Central Bank's responsibility to manage FOREX receipts and payments.
The Central Bank supervises and regulates banks and financial institutions.
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| Lender of Last Resort |
The Central Banks are described as "the lender of last resort"; which means that it is responsible for providing its company with funds when commercial banks cannot cover a supply shortage. In other words, the central bank prevents the country's banking system from falling.
European Central Bank.
Let’s take a look at some prominent Central Banks in US, Europe and Asia. The establishment of Euro Zone meant having common currency and common trade policies for the member country and such raised the need of having a Central Bank at Euro Zone level. That is how the European Central Bank or ECB was established. The Central Bank of euro region, the European Central Bank (ECB) was established in 1st January 1999. ECB is one of the world’s important central banks, responsible for monetary policy covering the 13 member countries of the Euro zone. ECB is run and governed by the central banks of EU members’ countries.
The responsibilities of ECB are:
- Formulate monetary policies
- Conduct foreign exchange
- Hold currency reserves
- Issues of bank notes
- Provide price stability for Euro
ECB allows banks to open branches throughout Europe and not just the home countries.
The ECB structure has two bodies, Governing Council and Executive Council.
- The Governing Council is the supreme decision making authority of the ECB. It is composed of the members of the executive board and the governors of the national central banks which adopted euro. The Council is responsible for taking decisions on monetary policy, interest rates and the reserves of the ESCB. It is also responsible in other matters, such as authorizing of the issue of banknotes and advising other EU institutions on draft legislation.
- The Executive Board looks after the implementation of monetary policy defined by the Governing Council and the day-to-day operations of the bank.
Federal Reserve.
The Federal Reserve is the central bank of the United States. However, unlike central banks of other countries, the Fed’s structure and policies are not solely driven by the Federal government. Although Congress initially develops the Fed’s organizational design and authority, and the president appoints the Board of Governors, the Fed acts independent of the federal government in carrying out their duties.
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| Federal Reserve Board |
The Fed combines the following bodies:
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- Board of Governors.
- Federal Reserve district banks
- Federal Open Market Committee (FOMC)
Types of Banks.
Retail Banks deals with individuals and small businesses. They provide the following services to the clients.
- Savings Account
- Pays interest on the balance
- No specific maturity date on which the funds needs to be withdrawn
- Any amount can be withdrawn from a saving account up to the amount deposited
- Depositors cannot write checks against savings deposits
- Checking Account
- Pays no interest
- Depositors can write checks against the account
- Minimum balance to be maintained
- Fess or charges are levied for certain specific features
- Remittances
- Non-electronic form
- Electronic form
- Issuing Cards
- Credit Cards
- Debit Cards
- Charge Cards
- Smart Cards
- Teller
- Provide service for cash transactions
- Term deposits
- Deposits are allowed with a specific maturity date agreed by the depositors and the bank
- Withdrawal is not allowed before maturity without penalty
- Term deposits are not as liquid as demand or saving deposits
- Loans
- Home loans are typically long term loans
- The interest rate charged for the home loans can be either variable or fixed
- Closed-end credit loans
- Open-end credit loans
- Locker
- A secure vault where money, valuables, records, and documents can be stored
Investment Bank
An Investment Bank is a financial services' firm which acts as an underwriter or agent and serves as an intermediary between the issuer of the security and the investors.
Investment Banks provides:
- strategic financial advisory services for corporate clients, especially for mergers, acquisitions and security issues
- financial securities research for investors and corporate customers
- raise fund in equity capital markets or equity and debt markets
- manage the existing securities and funds
- brokerage and foreign services for public and institutional investors
Commercial Banks or Corporate Banks deals with large businesses and corporations.
Commercial Banks provides:
- Working Capital Finance
- Term Finance
- Documentary Credit
Private Banking is a term for banking, investment and other financial services provided by banks to private individuals investing sizable assets.
Various Delivery Channel.
- Internet Banking
- Telephone Banking
- ATMs od POS
- Mobile Banking
- Branch Banking
I hope you enjoyed learning all about banking.
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