Banking Defined

Banks typically accept and safeguard money owned by entities such as individuals, businesses and corporations and thereafter lending the money for profit. Banks are very critical in financial organization; you need a bank account to save your hard earned money since banks offer a secure place to keep your money as opposed to your wallet or home. One of the biggest benefits of saving your money in the bank is that you can earn interest from your savings and get loans. Banks normally reach out to customers using a number of channels including; access via the Automated Teller Services (ATM), branch location, mobile banking, call center, telephone banking, and online banking and using Direct Selling Agent.

The two most common types of banks include; retailer commercial banks and investment centered banks. Most banks are regulated by the national central banks or the national government. Investment banks typically focus on offering services such as corporate reorganization and underwriting to institutional category of clients. The commercial banks, on the other hand, are typically concerned with managing deposits and withdrawals as well as offering clients short term loans. Most consumers use commercial banks to access services such as Certificate of Deposits (CDs), basic checking and savings account as well as home mortgages. The other banking incentives include; convenience and reasonable interest rates and fees.

In banking, trust is the most important driver to any banks survival; customers keep their money in the banks only when trust exists. Banking trust is based on the assurance that customers can always get their money back when they demand it for whatever reason or after the maturity of the fixed deposit period. Banks generate revenues in many different ways including via interest charges, through financial advice and transactional fees. However, the primary source of income for most banks is via charging interest rates on loans and capital lend out to customers. Other common sources of income for banks include charging fees and financial advice to customers for services rendered.

Banks normally face a number of risks associated provision of banking and financial services to customers. However, the most important thing is usually how well the banks manage such risks in order to eke out profits or minimize risk exposure to the business. The other important aspect banks have to consider when managing the risk levels includes the amount of capital a bank holds in terms of retained earnings, equity and subordinated debt. The most common banking risks are; credit risk, reputational risk, operational risk, liquidity risk, macroeconomic risk and market risk.

Although most banks maintain brick and mortar presence, many others maintain an online presence; most online based banks offer consumers services that factor in lower fees and higher interest rates. The other institutions offering banking services to the wider public include credit unions. Today, most larger banks offer a range of services outside the traditional core duties; these services include; customer finance, commodity trading, equity trading, money market trading, foreign exchange trading in addition to futures and options trading.